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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended January 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission file number 0-22798
SPECIALTY EQUIPMENT COMPANIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 36-3337593
(State of (I.R.S. Employer
incorporation) Identification No.)
1245 Corporate Boulevard, Suite 401
Aurora, Illinois 60504
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (630) 585-5111
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each Exchange
- ------------------- on which registered:
Common Stock (par value $.01 per share) ----------------------
Nasdaq Stock Market
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
Aggregate market value at March 20, 1997 of the voting stock held by
non-affiliates of the Registrant -- $141,395,774 (based on a closing price of
$13.00 per share on that date as reported on the Nasdaq Stock Market). (The
Registrant has assumed that all directors, executive officers and holders of
40% or more of the shares of Common Stock are affiliates for the purposes of
this calculation.)
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of Securities under a plan
confirmed by a court. YES X NO
--- ---
Number of shares outstanding of each of the Registrant's classes of common
stock as of the close of the period covered by the report: 18,015,918 shares of
Common Stock, $.01 par value.
Documents Incorporated By Reference:
A portion of the Company's Proxy Statement relating to its 1997 Annual
Meeting of Stockholders is incorporated by reference in Part III hereof.
Exhibit Index appears on Page 47
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PART I
ITEM 1. BUSINESS
GENERAL
Specialty Equipment Companies, Inc. ("Specialty" or the "Company") is a
domestic manufacturer of a diversified line of highly engineered commercial and
institutional foodservice equipment used by a variety of quick service
restaurant chains, convenience store chains, specialty chains, soft drink
bottlers and institutional foodservice operators. The Company emphasizes the
engineering and development of specially designed, state-of-the-art foodservice
equipment, and sells a broad array of standardized foodservice equipment and
related products.
The Company conducts its business through four principal operating
divisions: Taylor Company, Beverage-Air, Wells Manufacturing/Bloomfield
Industries and World Dryer. The first of these businesses began in 1920 when
Wells produced its first waffle baker. Taylor provided its first ice cream
freezer to a restaurant in 1926 and has been providing shake machines to
McDonald's since the 1950's. Beverage-Air started making refrigerated cabinets
in 1944, and Bloomfield coffee service products were introduced in the 1950's.
World Dryer introduced its first warm air hand dryer in 1951. Each division
has its own management, marketing, manufacturing and product development teams.
OPERATING DIVISIONS
Taylor Company
Founded in 1926, Taylor is the world's largest designer and manufacturer
(in sales) of soft serve ice cream, frozen yogurt, shake, batch ice cream and
frozen beverage dispensing equipment. Taylor's engineering and manufacturing
capablities afforded them the opportunity several years ago to extend their
equipment offerings from only "cold" equipment into "hot," or cooking,
equipment. As a result, in 1985 they began manufacturing and shipping
automated "clam shell" grills worldwide, that both increase speed of cooking
and assures product safety through consistent temperature profiles and quick
recovery. In addition, Taylor manufactures flat grills and customized hot and
cold food preparation/holding cabinets. This expanded line of both hot and
cold equipment is supported by a strong distributor network that is committed
to sales and service to the food service industry. Taylor's sales are
primarily attributable to domestic and international new store growth and the
addition of equipment to existing stores' equipment packages, remodeling and
retrofitting of existing store kitchens (primarily driven by the addition and
substitution of menu items) and replacement of older equipment.
With the expansion of manufacturing capabilities to include both hot and
cold equipment Taylor's active product development program focuses on the
Company's growth prospects. Special engineering groups concentrate on
individual product lines to develop new technologies that address food service
operators' concerns of labor, maintenance and service costs. Proprietary
hardware and software is developed, tested and implemented in-house. In the
early 1990's Taylor developed Labor Saver(TM) heat treatment equipment for use
in both soft serve and shake freezers that significantly reduces cleaning and
maintenance labor costs. While standard machines require daily disassembly
and cleaning, machines with the Labor Saver(TM) feature need only be
disassembled and cleaned biweekly. Taylor products feature technologies such as
Softech(R), a patented, integrated memory system designed to control all
necessary modes of refrigeration and to control automatically the hardness or
viscosity of the frozen product. Other advanced technologies include a beater
designed with molded scraper blades, solid-state thermistor controls and a
double-insulated freezing cylinder. Taylor has also developed additional
refrigeration and cooking equipment to expand its product lines, including the
development of two specialized ovens for baking and holding applications, and
frozen non-carbonated beverage equipment.
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As a major supplier to global quick service restaurant and convenience
store chains, Taylor has long maintained close relationships with these
customers. These relationships have enabled Taylor to customize its product
offerings to provide these customers with specialized equipment for their
particular needs and preferences. As a result of this applications engineering
approach, Taylor was able to expand its line of products into cooking and
heating equipment, to complement its position in cold dispensing equipment.
For example, Taylor developed, in cooperation with McDonald's, an automated
"clam shell" grill which incorporates upper and lower grill plates to cook food
products such as hamburger patties faster and more uniformly by grilling both
sides simultaneously. Taylor manufactures this grill for McDonald's and
maintains a joint patent with McDonald's. Recently, in line with the Company's
business strategy, Taylor has developed a similar grill that it markets to the
quick service restaurant industry. Taylor anticipates further expansion into
specialized cooking and non-cooking equipment for the foodservice industry.
Management believes that Taylor's distributor network is a major factor in
Taylor's leading worldwide market position, as it allows Taylor to offer U.S.
and international customers reliable and consistent service worldwide. This
network consists of a worldwide group of more than 130 independent stocking and
servicing distributors. These distributors employ more than 300 full-time
salespeople and operate fleets of specialized service vehicles to provide
reliable and consistent sales and service coverage throughout their respective
territories. Management believes that most of these distributors and their
personnel derive most of their revenue from the sale and servicing of Taylor
products and thus are likely to have a continuing commitment to selling and
servicing Taylor products and protecting Taylor's reputation.
In 1995, a long range service plan, titled Service 2000, began with the
objective to enhance current programs for achieving service excellence. To
initiate this strategy, an advanced communication network was developed to
track service performance and to provide a benchmark for measuring continuous
improvement. With the continuing evolution and development of new equipment
technology, Taylor completed a 25,000 square foot additon to their
manufacturing facility in February 1997 to house the Taylor Technical Center.
This state-of-the-art facility is dedicated to maintaining the level of
professional service necessary to sell and service new equipment as well as to
expanding their current service network training. In addition, the facility
provides a technical resource center which is expected to help Taylor develop
its generations of foodservice and restaurant equipment.
During fiscal 1997 Taylor applied for and received ISO 9001 certification.
The International Standards Organization ("ISO") designation is issued by a
qualified registrar after assessing the Company's quality systems and finding
them in compliance with ISO standards. Management believes the designation is
not only a demonstration of the level of the Company's manufacturing and
product quality, but also provides the Company with a competitive advantage
because of the prestige related to ISO certification.
Beverage-Air
Beverage-Air is one of the two leading manufacturers (in sales) of
commercial refrigeration equipment for the soft drink bottling market and is
one of several leading manufacturers (in sales) of such equipment for the
foodservice market. Beverage-Air sells products under the Beverage-Air(R),
Marketeer(R) and Maxi-Marketeer(R) brand names. Its product offerings include
vertical and horizontal reach-in beverage coolers, freezers, refrigerators,
pizza and food preparation units, school milk coolers, self-contained beer
dispensing units and delicatessen and floral display cases.
Specialty acquired Beverage-Air in November 1986 to broaden Specialty's
product offerings to the national quick service restaurant and convenience
store chains. Specialty's management believed that Beverage-Air's product
lines and engineering capabilities were well-suited to support development of
customized refrigeration products for the major chains. Since its acquisition
by Specialty, Beverage-Air's sales to foodservice companies, particularly the
major national restaurant chains, has grown substantially. Beverage-Air has
advanced its product testing capabilities and has successfully completed the
Underwriter Laboratories ("UL") client test data criterion. These capabilities
will allow for faster equipment development in response to key chain account
product development programs.
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In the foodservice sector, Beverage-Air generates revenue principally
through sales to large restaurants, hotel kitchens, supermarkets and
convenience stores. Beverage-Air's major product lines in this sector include
stainless steel refrigerators and freezers, delicatessen display cases, pizza
and food preparation tables, refrigerated display cases and beer dispensing
equipment. Beverage-Air's foodservice products are serviced primarily through
independent service organizations.
In the soft drink bottling market, Beverage-Air markets its products to
bottlers around the world, generally affiliated with the major soft drink
companies, which purchase the coolers for placement in supermarkets,
convenience stores and special venues. The Company has worked with the
bottlers to customize these coolers to meet their marketing needs. For
example, the Company has designed several unique point-of-purchase soft drink
merchandisers, such as Coca-Cola's Fast Lane(TM), for use in the express check
out lanes of supermarkets. In addition, the Company has developed a new line
of curved-front vertical merchandisers (Maxi-Marketeers) and a new Contour
Cooler(TM) for the international bottler market, which replicates Coca-Cola's
traditional contour bottle design.
Beverage-Air has a product development staff focused on developing
products for the markets it serves worldwide. In addition to research and
development activities focused on domestic and international sales, resources
have been dedicated to product development activities related to design,
performance and agency approvals specifically for international markets, since
these are markets targeted by its major customers. It is through this strategy
of integrated marketing that Beverage-Air has been able to grow its existing
customer base in key emerging markets.
In 1996, Beverage-Air completed construction of a 60,000 square foot
manufacturing facility in Honea Path, South Carolina. The addition of this
facility allows Beverage-Air's Spartanburg facility to be dedicated to the
manufacturing of merchandising equipment for the foodservice and soft drink
bottler industry. Management believes that this facility will reduce lead
times and increase the Company's ability to obtain large domestic and
international orders.
Wells Manufacturing/Bloomfield Industries
Wells, which was founded in 1920 and has been producing electric cooking
products for more than 75 years, designs, manufactures and markets a broad line
of warming and cooking equipment sold under the Wells(TM) name. The Wells
product line consists primarily of electric counter top and built-in appliances
(including fryers, griddles, food warmers, toasters, hot plates, waffle bakers,
convection ovens and broilers) sold principally through independent foodservice
equipment dealers and distributors. Besides restaurant chains and convenience
store outlets, ultimate users of Wells equipment include independent
restaurants, hotels, schools and hospitals. Wells has developed larger,
specialized products for major restaurant chains. Wells introduced Crispy
Lite(TM), a product line that gives store operators a complete fried and
roasted chicken program, including a pressure fryer, rotisserie oven and
storage and merchandising equipment all in one package. The Crispy Lite(TM)
product line is targeted at convenience and grocery store outlets.
Bloomfield designs, manufactures and markets a coffee and tea beverage
equipment product line that includes brewers, glass coffee decanters, insulated
beverage dispensers and related accessories. Recently Wells/Bloomfield
introduced a powder cappuccino dispenser and fully automatic espresso machine
under the name Cafe Elite(TM). Cafe Elite(TM) was recently approved for a
rollout through a major national chain. The Bloomfield product line is sold
directly to office coffee service customers and independent coffee roasters and
through independent foodservice equipment dealers and distributors. Ultimate
users of the Bloomfield equipment include major restaurants, hotels,
convenience stores and offices. The beverage equipment product lines and
supplies account for substantially all of Bloomfield's sales.
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Consistent with the Company's customized product development and marketing
strategy, Wells/Bloomfield has designed specialized cooking and warming
products and specialized coffee and tea brewing equipment to serve the needs of
particular national chains. These products have been approved and are
purchased by several leading national chains, including McDonald's, Boston
Market, Wendy's, Hardee's and 7-Eleven stores.
In 1993, the Company combined substantially all of its Wells and
Bloomfield operations at the Wells facility in Verdi, Nevada. The combining of
these operations has resulted in operating savings in both the manufacturing
and office support areas.
World Dryer
Founded in 1950, World Dryer designs, manufactures and markets commercial,
wall-mounted cast iron and stainless steel warm-air hand and hair dryers under
the World(R) Dryer, Airspeed(TM), No-Touch(TM), and Airstyle(TM) names and is
the leader (in sales) among domestic and international manufacturers of such
products. Uniquely positioned as the global leader of the electric warm-air
hand dryer industry, World Dryer designs, manufactures and markets its product
line for application in public washrooms. Its core product, the World Model A
cast iron hand dryer is distributed in more than 80 countries worldwide. World
Dryer products have long been approved and purchased by several major national
restaurant chains and can be found in public restrooms throughout the world.
World Dryer has expanded its line with new models targeted for specific
markets, and has introduced a less expensive, plastic encased line of hand
dryers under the Electric Aire(TM) name. More than 25% of World Dryer's
average annual sales for the last three fiscal years were of products for use
outside the United States.
World Dryer has designed a line of hand sanitation systems to address the
critical issues of food safety in the hospitality and healthcare industries.
The automatic hand washstation is a multi-functional unit that dispenses soap,
water and warm air or paper. The washstation features monitoring and warning
functions to provide monitorable compliance with state and federal health codes
for kitchen employee hand sanitation. World Dryer has also developed a line of
No-Touch(TM) dryers, soap dispensers and automatic faucets for the foodservice
industry.
During fiscal 1997 World Dryer applied for and received ISO 9002
certification. As with the ISO certification for Taylor, management believes
the designation is not only a demonstration of World Dryer's manufacturing and
product quality, but also a competitive advantage for the Company.
Management believes that World Dryer's marketing efforts, which emphasize
key sanitation issues, environmental benefits, such as waste paper reduction,
and lower end user cost, are a major factor in the continued success of World
Dryer.
ORGANIZATIONAL AND FINANCIAL HISTORY
The Company was incorporated under the laws of the state of Delaware in
1984. The Company acquired each of its currently active operations (other than
Beverage-Air) in January 1985 from Beatrice Companies, Inc. Specialty
acquired Beverage-Air from Gerlach Industries, Inc. in November 1986. The
Company completed an initial public offering in 1987 and was acquired by SPE
Acquisition, Inc. ("SPE") in a management-led leveraged buy-out in 1988. The
1988 management buy-out of the Company produced a highly leveraged capital
structure, including approximately $250 million in senior secured debt and $150
million of 13-3/4% Senior Subordinated Debentures due 2000 (the "Debentures").
Following the 1988 leveraged buy out, the Company did not achieve its
anticipated operating results, due in part to slow growth in the foodservice
equipment industry, and was unable to service certain of its debt obligations.
As a result, the Company defaulted on its obligations (and certain financial
covenants) under its senior debt, triggering a default under the terms of the
Debentures. Following these defaults, the Company entered negotiations with
its senior lenders and certain of the significant holders of the Debentures
that culminated in a pre-negotiated plan of reorganization (such plan of
reorganization is hereafter referred to as the "POR," such reorganization is
hereafter referred to as the "1992 Reorganization").
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The Company and SPE filed separate voluntary petitions in the United
States Bankruptcy Court for the Northern District of Illinois, Western Division
(the "Bankruptcy Court") on December 24, 1991 under Chapter 11 of the United
States Bankruptcy Code (Case Nos. 91-B32766 and 91-B32767). The Company
emerged from Chapter 11 and the 1992 Reorganization was consummated on March
31, 1992, although the case remains open, principally for purposes of claims
resolution. Pursuant to the 1992 Reorganization, SPE was merged with and into
the Company. The Debentures were exchanged for an aggregate of 15 million
shares of the Company's common stock, par value $.01 share ("Common Stock").
The Company and its senior lenders entered into an amended and restated senior
secured credit facility (the "Former Credit Facility") which, among other
things, extended the amortization period, reduced the interest rates and
amended the financial covenants with respect to the previous senior loans. The
Company also issued stock to the senior lenders under the Former Credit
Facility and a warrant to purchase common stock to General Electric Capital
Corporation ("GECC"), the only lender under the revolving credit portion of the
Former Credit Facility. The Company paid all its trade creditors in full.
Additionally, all of the pre-bankruptcy stock and rights to purchase stock in
the Company and SPE were canceled, and the holders of that stock and those
rights received no distributions in the bankruptcy cases.
On December 1, 1993, the Company completed a refinancing plan (the
"Refinancing"). The Refinancing consisted of a $185 million public offering of
11-3/8% Senior Subordinated Notes due 2003 (the "Notes") and a new senior
secured loan facility (the "Bank Credit Agreement") with Barclays Business
Credit, Inc. (now known as Fleet Capital Corporation) and certain other lenders
which provided the Company a $50 million line of credit, as amended, and a $15
million term loan. The Former Credit Facility was repaid in full in December
1993 from the proceeds of the Refinancing.
On December 1, 1996, the Company entered into a credit agreement with
several banks and Bank of America, Illinois, as agent for the banks (the "BA
Credit Agreement"). The BA Credit Agreement provides for an unsecured $60
million credit facility which includes an unsecured line of credit of $45
million and a $15 million facility for letters of credit. The BA Credit
Agreement was used to refinance the Company's Bank Credit Agreement. As of
January 31, 1997, the Company had no borrowings on the line of credit. In
addition, during fiscal 1996 and 1997, the Company acquired a total of $36
million of the Notes ($149 million of the original $185 million of the Notes
remain outstanding.)
COMMERCIAL FOODSERVICE INDUSTRY OVERVIEW
The Company generally treats the commercial foodservice equipment industry
as being divided into four customer categories: full service restaurants,
quick service restaurants, retail outlets, such as supermarkets and convenience
stores, and public and private institutions (schools, hospitals, hotels,
corrections facilities and other governmental facilities). The Company
primarily serves customers in the quick service restaurant and retail outlet
categories.
The foodservice market, and particularly the quick service restaurant and
retail outlet categories, grew in the 1980's in response to both population
growth and other demographic changes, principally the emergence of families
with multiple wage-earners, causing greater demand for convenience in food
preparation and consumption. Along with this growth came increased sales of
foodservice equipment. From 1988 through 1991, however, there was little
growth in the market for foodservice equipment due in part to the general
decline in the worldwide economy and a general maturation of the foodservice
industry. The downturn in the market also led to greater price competition than
the Company had experienced in earlier years. The market for foodservice
equipment experienced gradual recovery in 1992 and a sustained recovery since
then. The recovery has been primarily a result of quick service restaurant
chains accelerating domestic and international expansion, remodeling to
facilitate menu and layout changes in response to competitive pressures in the
industry and modernizing their equipment. According to published industry
sources, domestic sales of foodservice equipment increased 6.2% to $6.21
billion in 1996 and are projected to grow by an additional 6.6% in 1997. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
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Growth in the foodservice equipment market results primarily from new
store openings, replacement of equipment for store remodeling and upgrade
programs and purchases of equipment to support new menu items. Management
believes that the domestic growth in new stores for many of these chains has
slowed, but that the previously opened stores have entered remodeling and
equipment replacement phases. Management also believes that the competition
resulting from slower growth in the domestic foodservice industry has caused
quick service restaurant chains to make more frequent menu and format
modifications, increasing their demand for more flexible equipment. In
addition, management anticipates that the demand for labor saving and energy
efficient equipment will also increase. Furthermore, management believes that
convenience stores and supermarkets continue to increase their sales of
prepared and fast foods, which leads to increased demand for the types of
products manufactured by the Company. Finally, openings of quick service
restaurants in non-traditional sites, such as retail stores, supermarkets and
airports, present an opportunity for the Company by expanding the market for
its products.
Throughout the world, the concentration of quick service restaurants is
substantially lower than in the United States. The more limited penetration of
quick service restaurants outside the United States provides domestic quick
service restaurant chains with opportunities for international expansion and,
as a result, several leading domestic chains have embarked upon significant
international expansion. Internationally, the major quick service restaurant
chains grew by 17% in 1995, as measured by the number of new operating units.
The Company's largest customer, McDonald's, accounts for more than 50% of all
international sales realized by the largest 100 U.S. restaurant chains. In
fiscal 1997, approximately 30.3% of the Company's sales were of products
intended for use outside the United States compared with 26.1% in fiscal 1996,
and during the past two years such sales have increased at an average annual
rate of 20% per year. Despite the opportunities, the international markets
present significant competitive risks, particularly the high cost of
maintaining service capabilities which in the United States has been important
in establishing and maintaining the Company's market position.
BUSINESS STRATEGY
The Company's business strategy is to maintain and improve its position as
a leader in the foodservice equipment industry. The key elements of this
strategy include the following:
Focusing on Major National Chains
The major global quick service restaurant chains, convenience store
chains and specialty chains lead the foodservice industry by focusing on menu
innovation, productivity, sanitation, energy efficiency and environmental
issues. To serve these customers, the Company designs specialized foodservice
equipment to meet the specific performance requirements and appearance
characteristics of the chains, to respond quickly and effectively to changes in
the chains' competitive environment and to dedicate manufacturing capacity to
deliveries of new or modified equipment as part of the chains' changes in
marketing programs. In many cases, the Company is one of only two or three
manufacturers whose product satisfies the equipment specifications of major
national chains for a particular item. The Company maintains an active product
development program with an emphasis on engineered products to meet special
applications. The Company organizes product design and sales teams to work
closely with the national chains in developing applications to meet their
specific requirements and operates manufacturing facilities designed for
flexible assembly procedures and short production runs.
The Company also attempts to anticipate the needs of its customers and
conducts internal research and development to design equipment to advance the
state of the art in foodservice efficiency. Taylor has developed Labor
Saver(R) heat treatment equipment for use with its soft serve and shake
freezers that significantly reduces the labor costs of cleaning and
maintenance. Beverage-Air has been involved in developing point of purchase
displays to be used by merchandisers, such as the Fast-Lane(TM) and Contour
Cooler (TM) products sold to Coca-Cola bottlers to market their products in
retail checkout areas and other special points of distribution.
Wells/Bloomfield's new Cafe Elite(TM) product was recently approved for a
rollout through a major national chain.
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Capitalizing on the Opportunities Presented by the Significant International
Expansion of the Major Quick Service Restaurant Chains
Management believes that the international expansion of the major national
quick service restaurant chains, including the Company's largest customer, is
resulting in significant growth in the foodservice equipment industry. Several
leading domestic quick service restaurant chains are in the midst of
significant international expansion. Management believes that the expansion of
the major chains internationally is presenting an opportunity for growth for
the Company as well. To capitalize upon this opportunity, the Company has,
among other things, increased its international distribution and service
support networks.
Leveraging its Long-Term Relationships With Existing Major Customers
The Company's strategy reflects its historic relationships with the major
national quick service restaurant chains as a result of the high penetration
rate of Taylor's ice cream freezers throughout that market. Management
believes that these relationships have developed in large part because of the
Company's extensive distribution and service network and its customized
manufacturing capabilities, initially implemented at Taylor, that enable it to
produce equipment to meet the high-quality and volume needs of each of its
customers. Based upon these relationships, the Company has been able to employ
an integrated marketing approach which has expanded the customer base for each
division. For example, Bloomfield coffee makers, Beverage-Air refrigeration
equipment, Wells warmers and World Dryer hand dryers are now approved for use
in McDonald's, Burger King, Wendy's and Hardee's, and other restaurants.
Developing New Products and Line Extensions by Extending Engineering Expertise
to Standardized Foodservice Equipment
Another element of the Company's strategy is to adapt certain product
features developed for the national chain accounts to enhance the Company's
overall product line. Management believes that a large portion of the
equipment and related products used in the foodservice industry is standardized
and consequently subject to price competition, including import competition and
purchasing considerations based on volume and freight costs. By improving some
of these standard product features by using innovations developed in its
applications engineering programs, the Company can differentiate its products
and thus compete on bases other than price. In some cases, innovations
developed by the Company for national chains have created new products for its
general product lines and have enabled the Company to achieve manufacturing
cost efficiencies by facilitating longer production runs. For example, the
Company recently developed a grill, similar to the "clam shell" grill it
developed for McDonald's, that it markets to the general foodservice industry.
OPERATIONS OUTSIDE THE UNITED STATES
The Company has several international sales outlets. The Company's
Canadian subsidiary, Bloomfield Industries Canada Limited, manufactures a
portion of the Bloomfield line at its Mississauga, Ontario plant and markets
the entire Bloomfield product line throughout Canada. World Dryer maintains a
sales office and warehouse at the Mississauga plant. Taylor has a foreign
sales subsidiary in Rome, Italy, Taylor Freezer International, S.r.l., which
administers certain of Taylor's export sales. All divisions have relationships
with dealers and distributors which taken together provide sales and service
support for the Company's products in more than 105 countries worldwide.
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WORLDWIDE MARKETING AND DISTRIBUTION
Management believes that a key to the Company's long-term relationships
with its principal customers is its worldwide marketing, distribution and
service network. These customers require a high degree of responsiveness in
product development, production, delivery and service on a worldwide basis.
Management believes that the Company's extensive distribution and service
network, particularly at Taylor, gives it a competitive advantage in the
markets in which it competes. Furthermore, the Company believes that it enjoys
a favorable strategic position as a result of the relationships that each of
its operating units has developed through the years with various customers.
The Company believes that these relationships help implement its integrated
marketing efforts, which have expanded the customer base for each of the
divisions.
Each division directs its own marketing efforts through a combination of
field sales personnel, consisting of direct salespeople, commissioned agents
and distributor salespeople. Each operating division also manages its own
marketing, sales and service programs, with support from the division's
in-house sales and administrative personnel. The following table summarizes
the primary distribution mechanisms employed by each of the Company's operating
divisions:
<TABLE>
<CAPTION>
DIVISION
PRINCIPAL DISTRIBUTION METHODS
<S> <C>
Taylor - Independent distributor network consisting of 47 North
American and 90 international distributors
- Direct sales support to national chains
Beverage-Air - Network of 38 independent representative firms and more than
1,500 foodservice equipment dealers and bottlers
- Direct sales to soft drink bottlers
Wells/Bloomfield - Network of 49 representative firms, more than 1,500
foodservice equipment dealers and suppliers and 250
authorized service centers
- Direct sales to office coffee services
World Dryer - Electrical, plumbing and janitorial supply distributors
- Building contractors
- Foodservice equipment dealers
- Catalog supply houses
</TABLE>
Typically, the Company designs and produces equipment which satisfies the
specifications of major national chains for use in their restaurants, and
markets that equipment through extensive networks of independent dealers,
distributors and sales representatives directly to the chains and the
restaurant operators. Management believes that the Company's marketing and
distribution network is one of its major strengths as it allows the Company
consistently to deliver high-quality customer service. Many dealers and
distributors in this network have been associated with the Company and its
businesses for more than 20 years. The Company also sells certain products
directly to the chains.
COMPETITION
In general, the foodservice industry is highly competitive with
competition primarily based on price, product features, quality, reliability,
serviceability, field service and name recognition with no one method of
competition being generally more important than any of the others. The Company
believes that it is competitive on these bases. The Company's competitors
include companies that manufacture a variety of foodservice equipment products
and those that specialize in a particular product. While the Company is one of
the largest manufacturers in an industry which is characterized by many small
producers and a fragmented market, some of its competitors are units of
operations which are larger than the Company and possess greater financial and
personnel resources. Also, during periods of poor economic conditions, the
Company faces competition from used equipment, particularly equipment
originally manufactured by the Company, which presents a lower
cost, acceptable quality alternative to newly manufactured equipment.
Management believes that price will continue to be a major competitive factor.
Outside the United States, the Company faces many local competitors throughout
its product lines.
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COMPONENTS AND SUPPLIES
Most of the Company's component purchases are for standard commodity-type
materials such as stainless steel, coatings and electrical components. Such
components are generally available from many suppliers, and the Company has not
experienced any significant shortages. The Company also purchases custom
components produced to its specifications. The Company believes it enjoys good
relationships with its suppliers. No long-term supply contracts are used,
although the Company occasionally purchases some materials in advance as a
hedge against price increases.
BACKLOG
The Company's backlog of unshipped orders was approximately $37.2 million
at February 28, 1997, compared with $38.4 million at February 29, 1996. The
Company expects to deliver its existing backlog during the current fiscal year.
EMPLOYEES
As of February 28, 1997, the Company employed 2,274 persons, of whom 22 at
Bloomfield's decanter manufacturing facility in Forestview, Illinois were
covered by collective bargaining agreements. The Company generally considers
its relationships with employees to be satisfactory and has not experienced a
work stoppage due to a labor dispute in more than 10 years.
PATENTS AND TRADEMARKS
The Company holds numerous patents and trademarks registered in the United
States and foreign countries for various products. The Company believes that
an integral part of its strength is its ability to capitalize on its
tradenames, several of which are widely recognized, and it takes such actions
as it determines necessary to protect these names. The Company's rights in its
trademarks will continue for so long as it uses the marks and takes the
necessary actions to protect its rights. The Company's trademark registrations
in the United States and most foreign countries are required to be renewed
periodically, and the Company intends to do so based upon its continued use of
such marks. Frequently, the Company's products, and certain of their features,
are patented, but management believes that no individual patent is material to
the Company's business as a whole.
DEPENDENCE ON MAJOR CUSTOMERS
During fiscal 1995, 1996 and 1997, sales to McDonald's restaurants (both
McDonald's owned and independently franchised) accounted for approximately 18%,
22% and 20%, respectively, of the Company's revenue. Since fiscal 1994, sales
to McDonald's have grown by more than 60%. The growth in sales since fiscal
1994 is due in part to the international growth experienced by McDonald's.
While management believes its relationship with McDonald's is favorable, the
Company has no contracts with McDonald's assuring it of any sales beyond those
reflected in its backlog. If revenues from sales to McDonald's were to
substantially decrease, such decrease would likely have a material adverse
effect on the Company's financial position.
The Company's financial performance is tied closely to its major
customers' demand for large quantities of mass produced customized products, or
roll-outs. For example, in fiscal 1994 through the first six months of fiscal
1996, the Company's improved performance can be partially attributed to a
significant rise in the number of orders for refrigerated point-of-purchase
displays by soft drink bottlers, primarily those associated with Coca-Cola and
PepsiCo. In the past, large roll-outs of products such as Taylor's "clamshell"
grill have been similarly significant to the Company's performance. However,
the ability to predict which customers and which products will experience
roll-outs is limited, and there can be no assurances that in any year the
Company will receive orders for any such roll-outs.
9
<PAGE> 11
REGULATION AND ENVIRONMENTAL COMPLIANCE
The Company is subject to the Federal Occupational Safety and Health Act
and other laws regulating safety and noise exposure levels in the production
areas of its facilities. The Company's facilities are subject to numerous
federal, state and local laws and regulations designed to protect the
environment. Environmental laws and regulations that are material to the
Company's operations include the Clean Air Act, which regulates air emissions
and the phase-out of chlorofluorocarbons ("CFCs"), the Clean Water Act, which
regulates discharges to waters of the United States, the Resource Conservation
and Recovery Act, which regulates the handling and disposal of hazardous
substances, the Comprehensive Environmental Response Compensation and Liability
Act, which applies to cleanup of hazardous waste and the Emergency Planning and
Community Right to Know Act, which applies to disclosure of information on the
use of hazardous substances. Environmental laws and regulations that are
material to the Company's operations also include state counterparts to these
federal laws. Management believes that the Company is in compliance with all
applicable laws and regulations and believes that continued compliance with
these laws and regulations will not require significant capital expenditures or
affect the Company's future operations. See "--Legal Proceedings."
The Company has made substantial investments in investigating and testing
potential refrigerants and updating its product lines to use component parts
that comply with the 1990 Amendments to the Clean Air Act, which institute a
phase-out of the production and consumption of certain CFCs. Beverage-Air has
eliminated components using CFCs from its medium temperature applications
equipment, and Taylor has converted its low temperature compressor equipment
away from components using CFCs. In both cases, the CFC based components have
been replaced by components using hydro fluorocarbons, which are believed to be
environmentally safer. In fiscal 1996, Beverage-Air was awarded the EPA's
"Stratospheric Protection Award" for its efforts in meeting required conversion
of refrigerants and eliminating CFC based components. The Company is
continuing its efforts to reduce the number of its products using CFC based
components.
New legislation and regulations, as well as revisions to existing laws and
regulations at the local, state and federal levels, may be proposed in the
future concerning environmental matters and the foodservice equipment industry.
Such proposals could affect the Company's operations, result in material
capital expenditures, affect the desirability of the Company's existing
products and/or could limit or create opportunities for the Company with
respect to modification to existing products, and with respect to new products.
While the Company is not aware of any proposed local, state or federal
environmental statutes or regulations which will materially affect its
operations or the market for its products or result in material capital
expenditures, it cannot predict the effect from any possible future legislation
or regulations. During fiscal 1997, other than normal equipment
considerations, there were no material capital expenditures for environmental
control facilities and no future material expenditures are anticipated.
SEASONALITY
The Company experiences seasonal fluctuations in working capital
requirements of approximately $10 million to $15 million, with working capital
requirements generally peaking in February and March due to offering extended
payment terms to distributors on soft serve ice cream and yogurt machine
shipments before the spring and summer selling season.
10
<PAGE> 12
ITEM 2. PROPERTIES
FACILITIES AND MANUFACTURING
The Company's manufacturing facilities are generally equipped to process
products from raw materials to finished products. Management believes that the
Company's equipment and facilities are well-maintained and, together with the
Company's proposed expansion in South Carolina, generally are, and will
continue to be, adequate for the Company's present and immediate future needs.
In 1996, the Company completed construction of a 60,000 square foot
manufacturing facility in Honea Path, South Carolina. The addition of this
facility will allow Beverage-Air's current Spartanburg facility to be dedicated
to the manufacturing of products for the soft drink bottler industry.
Since 1992, the Company has developed a Total Quality Management program
at each of its principal operating divisions. As part of this program, during
fiscal 1997, Taylor and World Dryer were certified under the International
Standards Organization as ISO 9000 companies.
Metal fabrication, finishing, sub-assembly and assembly operations are
conducted at the facilities. Among major categories of equipment installed at
individual locations are numerically controlled turret presses, robotic and
conventional welding equipment, electrostatic powder coating facilities,
polishing equipment, numerically controlled machining centers, computer
assisted design systems and product testing and quality assurance measurement
devices.
The following table sets forth certain information relating to the
Company's principal facilities:
<TABLE>
<CAPTION>
APPROX. SQUARE OWNED/DATE OF
DIVISION LOCATIONS USE FOOTAGE LEASE EXPIRATION
-------- --------- --- ------------- ----------------
<S> <C> <C> <C> <C>
Taylor Rockton, IL Manufacturing and office facilities 336,000 Owned
Technical training facility 25,000 Owned
Warehouse facility 7,600 Month-to-Month
Warehouse facility 28,800 December 2001
Warehouse facility 5,600 Month-to-Month
Rosemont, IL Warehouse and office facility 10,500 April 2001
Beverage-Air Spartanburg, SC Manufacturing, office and
warehouse facilities 323,000 Owned
Warehouse facility 53,000 December 1998
Honea Path, SC Manufacturing facility 60,000 Owned
Brookville, PA Manufacturing facility 145,000 December 2000
Wells/Bloomfield Verdi, NV Manufacturing and office facilities 90,000 June 2002
Manufacturing and office facilities 18,000 Owned
Manufacturing facility 24,300 Owned
Sparks, NV Warehouse facility 28,000 March 2000
Mississauga, Manufacturing and 37,200 October 2000
Ontario, Canada (1) office facilities
Forestview, IL Decanter manufacturing facility 43,000 July 1999
World Dryer Berkeley, IL Manufacturing and office facilities 50,000 February 1998
Executive Office Aurora, IL Office facility 5,100 November 2000
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) World Dryer also uses this facility.
11
<PAGE> 13
ITEM 3. LEGAL PROCEEDINGS
Litigation
The Company is a defendant along with other defendants in an action filed
on July 20, 1995 entitled "Thermodyne Food Service Products, Inc. and AFTEC,
Inc. v. McDonald's Corporation, et al." in the United States District Court,
Northern District of Illinois, Eastern Division. Plaintiffs allege that the
Company and other defendants misappropriated trade secrets in connection with
the Company's development of an oven for McDonald's and OSI. As a result of a
ruling on a motion to dismiss, the only claim remaining against the Company is
the trade secret claim. The defendants' motion for summary judgment on the
trade secret claim was denied and the case is subject to go to trial at any
time. Although the complaint does not specify a dollar amount for claimed
damages, plaintiffs have filed documents with the court seeking up to $90
million in damages. The Company believes it has strong defenses to this claim
and intends to contest it vigorously. In addition, the Company believes that,
were it found liable, it would be entitled to seek contribution from the
co-defendants with respect to any such liability. The Company has not
established a reserve in its financial statements relating to this case.
The Company and certain of its current and former directors are named as
defendants in an action filed by Virginia A. Noerr, who claims to be a
stockholder of the Company's common stock. The action "Noerr v. Greenwood et
al.," C.A. No. 14320, is pending in the Court of Chancery for the State of
Delaware in and for New Castle County, Delaware. Plaintiff purports to bring
this action both as a class action on behalf of all stockholders of record on
April 2, 1993 and derivatively for the benefit of the Company. The amended
complaint alleges that the named individual defendants breached fiduciary duties
of care and loyalty owed to the Company with regard to stock options granted to
the named individual defendants and with regard to the accuracy of the
disclosures in the proxy statement which sought stockholder approval. Plaintiff
also alleges, among other things, that implementation of the Company's stock
option plan constituted self-dealing transactions not entirely fair to the
Company in that the exercise price of the options was so unreasonably low that
the issuance of Common Stock pursuant to the options constitute waste. The
amended complaint seeks, among other things, entry of judgment against
defendants permanently enjoining them from exercising the stock options;
imposing a constructive trust for the benefit of the Company upon any profits
the individual named defendants may have made through exercise of their options,
and monetary damages, costs and expenses. In May 1996 plaintiff filed an amended
complaint. The amended complaint, among other things, corrects certain errors
in the original filing and expands the complaint to include the Company's
Executive Long-Term Incentive Plan. The individual defendants have made demand
upon the Company for indemnification. The Company believes that if the Company
were liable to the individual defendants for indemnification, the uninsured
portion of such liability would not be material to the Company. The Company
and the individual defendants believe that the plaintiff's allegations are
without merit and are factually incorrect and the Company intends to contest
these allegations vigorously.
The Company was a defendant, along with a number of its current and former
officers and directors, its former lender, General Electric Capital Corporation
("GECC"), and the underwriters with respect to the Company's 1988 offering of
debentures, in a securities class action filed by Melvin C. Nielsen (the
"Nielsen Case") alleging that the Company's prospectus and registration
statement with respect to such debentures contained material misrepresentations
and omissions, and seeking rescission of the sale of all $150 million of
debentures, and other compensatory and exemplary damages, and costs and
expenses. The claim was discharged against the Company pursuant to the
Company's plan of reorganization ("POR") and the Company was subsequently
dismissed from this case. In February of 1993, the Court dismissed plaintiff's
claims under Rule 10b-5 and common law fraud. In October of 1996, the Court
certified a class under Section 11 of the Securities Act and then entered
summary judgment in favor of all defendants as to all pending claims. The
period for appealing this judgment expired on February 22, 1997 and no appeals
were filed.
12
<PAGE> 14
Environmental
On May 5, 1994, the Company (doing business as Taylor Freezer Company) was
among more than 80 parties notified as potential third-party defendants in an
action involving the clean up of the MIG/Dewane Landfill near Belvidere,
Illinois. A third-party complaint has been filed by the principal owners and
operators of the landfill. Those owners and operators were sued by the
principal users of the landfill who in turn had been sued by the Environmental
Protection Agency ("EPA") in April, 1992. The complaint seeks contribution for
the proposed clean up of the site. The Company has not received settlement
offers from the EPA, but it settled its alleged liability with the private
plaintiffs for $54,000 for the costs associated with the remedial investigation
of the site. The Company has not settled its alleged liability for clean up
costs at the site. Beatrice Company (ConAgra) has assumed defense of the
matter and has agreed to defend and indemnify the Company for claims related to
the MIG/Dewane site to the extent they are related to Taylor and the events
giving rise to the claims occurring during the Beatrice Company (ConAgra)
period of ownership. Based upon presently available information, management
does not believe this matter will have a material effect on the Company's
results of operation or financial condition.
The Company has also received notice of potential environmental actions
from (i) the South Carolina Department of Health and Environmental Control
("SCDHEC") and the EPA with respect to drums of hazardous waste materials
disposed of in South Carolina, (ii) the SCDHEC with respect to the clean up of
the Unisphere Hazardous Waste Site in Spartanburg County, South Carolina, and
(iii) the Nevada Department of Conservation and Natural Resources, Division of
Environmental Protection ("NDEP"), which issued a finding of alleged violation
and order relating to alleged soil and ground water contamination. With respect
to the SCDHEC matter discussed in (i) above, management is unable to determine
the existence or amount of its potential liabilities because no formal
proceedings have been commenced and no notifications have been received
regarding this matter since December, 1992. The Company has reason to believe
that this site will be the subject of no further action by the EPA. With
respect to the SCDHEC matter discussed in (ii) above, management is unable to
determine the existence or amount of its potential liability, if any, because
the use of the site by Beverage-Air occurred prior to the purchase of the
Beverage-Air assets by the Company from Gerlach Industries in November, 1986.
With respect to the NDEP matter discussed in (iii) above, the Company has spent
approximately $313,000 to conduct tests and to implement a remediation program,
but given the pendency of the Company's appeal and its uncertain outcome,
management cannot estimate what, if any, additional expenditures might be
required.
Letters of Credit
As of January 31, 1997, the Company had letters of credit outstanding totaling
$11.9 million, which guarantee various business activities, including $6.5
million of letters of credit which guarantee the Industrial Project Revenue
Bonds.
Routine Matters
In addition, the Company is routinely involved in other litigation,
including environmental matters, incidental to its business. Such routine
claims are being vigorously contested and management does not believe that the
outcome of such litigation will have a material adverse effect upon the
financial condition of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders in the fourth
quarter of the year ended January 31, 1997.
13
<PAGE> 15
EXECUTIVE OFFICERS OF THE COMPANY
<TABLE>
<CAPTION>
YEAR FIRST
JOINED
SPECIALTY OR A
PREDECESSOR
NAME AGE BUSINESS POSITION AND OFFICES HELD
---- --- -------------- -------------------------
<S> <C> <C> <C>
Daniel B. Greenwood 77 1955 Director and Chairman of the Board
William E. Dotterweich 61 1981 Chief Executive Officer
Donald K. McKay 65 1977 Executive Vice President, Chief
Financial Officer, Treasurer and Secretary
William W. Robertson 65 1970 Chairman and President of Beverage-Air
Jeffrey P. Rhodenbaugh 42 1986 President, Chief Operating Officer,
Chief Executive Officer of Taylor
</TABLE>
Mr. Greenwood has served as Chairman of the Board since January 1985. He
also served as Chief Executive Officer from that date until September 1988 and
from November 18, 1993 to January 31, 1995. On February 1, 1995, Mr. Greenwood
resigned as Chief Executive Officer upon the election to such office of Mr.
Dotterweich. Mr. Greenwood has served as a director since January 1985. Prior
to January 1985, he was employed by Taylor for 30 years, most recently as
President.
Mr. Dotterweich served as President and Chief Operating Officer of the
Company and Chief Executive Officer of Taylor from December 1993 until
September 1996 and as Chief Executive Officer of the Company since February
1995. He has also served as Chief Executive Officer of Taylor from December
1993 to September 1996. Mr. Dotterweich will retire as Chief Executive Officer
on May 1, 1997. He has served as director of the Company since May 1995 and
from January 1985 to September 1988. From 1989 to 1992, Mr. Dotterweich worked
for the Company in a consulting capacity. Prior to that time, from 1985 until
1989, Mr. Dotterweich served as President and Chief Operating Officer of the
Company. From 1981 to 1985, Mr. Dotterweich was employed by Beatrice as
President of its Commercial Equipment Division which included the foodservice
equipment group.
Mr. McKay has served as Executive Vice-President, Chief Financial Officer,
Treasurer and Secretary since April 1989. From January 1985 until April 1989,
Mr. McKay served as Vice President of Finance, Treasurer and Secretary. From
September 1988 to March 1992, Mr. McKay served as a director of the Company.
From 1977 to January 1985, Mr. McKay was employed by Beatrice, most recently as
Vice-President of its Commercial Equipment Division.
Mr. Robertson has been employed by Beverage-Air since 1970 and has been
Chairman of Beverage-Air since March 1, 1996. From 1974 until March 1, 1996
and since September 1996 Mr. Robertson has served as President of Beverage-Air.
From April 1987 to March 1992 Mr. Robertson served as a director of the
Company.
Mr. Rhodenbaugh has been President and Chief Operating Officer of the
Company and Chief Executive Officer of Taylor since September 1996. He will
become Chief Executive Officer of the Company on May 1, 1997 upon Mr.
Dotterweich's retirement. He was President of Beverage-Air from March 1996
to September 1996. From April 1993 to March 1996 he served as Executive Vice
President of Beverage-Air. He also served as Vice President of Marketing of the
Company from January 1991 to September 1996. He served as President of Wells
from January 1990 to January 1991 and as Wells' Vice President of Sales and
Marketing from 1986 to January 1990. Mr. Rhodenbaugh joined Wells after nine
years at Hobart Corporation as a field sales employee and national account
manager. Mr. Rhodenbaugh serves on the board of directors and executive
committee and, for 1997, as president of the North American Association of Food
Equipment Manufacturers (NAFEM).
14
<PAGE> 16
PART II
ITEM 5. MARKETS FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The shares of Common Stock of the Company were listed and began trading on
the Nasdaq Stock Market on December 1, 1993. As of the close of business on
March 20, 1997, there were approximately 60 holders of record of the shares of
Common Stock of the Company. The Company estimates that there are
approximately 1,500 beneficial holders of its Common Stock as of the close of
business on March 20, 1997. The following table sets forth the market price
per share for the Common Stock of the Company.
<TABLE>
<CAPTION>
Market Price
High Low
------ ------
<S> <C> <C>
Period from February 1, 1995 to April 30, 1995 12-3/8 9-7/8
Period from February 1, 1995 to April 30, 1995 12-7/8 11-5/8
Period from August 1, 1995 to October 31, 1995 14 9-1/4
Period from November 1, 1995 to January 31, 1996 12-5/8 9-1/2
Period from February 1, 1996 to April 30, 1996 15-1/8 10-7/8
Period from May 1, 1996 to July 31, 1996 15-3/4 10-1/4
Period from August 1, 1996 to October 31, 1996 13-3/4 10-3/8
Period from November 1, 1996 to January 31, 1997 14-1/4 11
</TABLE>
The Company has paid no dividends on its Common Stock and it is the
Company's present intention to not pay dividends in the foreseeable future.
The Company's ability to pay dividends is restricted by covenants contained in
the BA Credit Agreement and the indenture for the Notes.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
The following table sets forth selected consolidated financial and
operating data for the Company and its predecessors for the periods and at the
dates indicated. The selected consolidated operating and financial data, at or
for each of the full fiscal years, the two month period ended March 30, 1992
and the ten month period ended January 31, 1993, presented below was derived
from the Consolidated Financial Statements of the Company, which were audited
by KPMG Peat Marwick LLP, independent auditors. The table should be read in
conjunction with the Consolidated Financial Statements, related notes, and
other financial information.
15
<PAGE> 17
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
PERIODS FROM
-------------------------
FEBRUARY 1 MARCH 31, 1992 YEARS ENDED JANUARY 31,
MARCH 30, TO JANUARY 31,
1992 (1) 1993 (1) 1994 1995 1996 1997
-------- -------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Net revenue $ 37,643 $229,745 $320,873 $371,730 $392,512 $401,230
Gross margin 11,351 66,629 98,981 119,273 123,747 122,110
Earnings (loss) from operations
before interest expense,
reorganization items and
income taxes 1,956 (39,427) (34,219) (18,311) 39,379 60,723
Earnings (loss) before extraordinary
item and cumulative effect
of a change in accounting
principle (2,534) (54,198) (58,420) (53,996) 8,911 34,122
Net earnings (loss) 144,393 (54,198) (58,420) (53,996) 8,693 32,338
Net earnings (loss) per common share NM (3.30) (3.56) (3.29) 0.41 1.51
Interest expense 3,223 14,180 17,117 22,997 21,010 18,714
Pro forma interest
expense (5) - - 24,382 - - -
Ratio of earnings to fixed
charges (2) - - - - 1.81x 3.07x
FINANCIAL RATIOS AND OTHER
DATA:
EBITDA (3) 4,236 23,762 45,537 60,629 65,973 66,992
Depreciation 777 3,929 4,540 3,954 4,309 4,616
Amortization (4) 1,503 59,260 75,216 74,986 22,285 1,653
Capital expenditures 142 2,735 4,295 6,693 5,666 9,185
Ratio of EBITDA to interest
expense 1.31x 1.68x 2.66x 2.64x 3.14x 3.58x
Ratio of EBITDA to pro
forma interest expense (5) - - 1.87x - - -
Ratio of EBITDA less capital
expenditures to interest
expense 1.27x 1.48x 2.41x 2.35x 2 .87x 3.09x
Ratio of EBITDA less capital
expenditures to pro forma
interest expense (5) - - 1.69x - - -
</TABLE>
<TABLE>
<CAPTION>
JANUARY 31,
BALANCE SHEET DATA MARCH 31,
(AT PERIOD END): 1992 1993 1994 1995 1996 1997
-------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Total assets $361,719 $299,183 $231,630 $168,576 $ 180,235 $176,916
Cash and cash equivalents, including
restricted cash equivalents 876 1,430 2,803 6,907 34,320 10,846
Long-term debt including
current installments 242,111 231,243 219,416 199,179 193,215 155,581
Total other liabilities 75,794 76,563 79,455 90,192 94,641 92,566
Total stockholders' equity
(deficit) 43,814 (8,623) (67,241) (120,795) (107,621) (71,231)
NM - Not Meaningful
</TABLE>
(footnotes on next page)
16
<PAGE> 18
(footnotes from preceding page)
1. As a result of the Company's emergence from Chapter 11 bankruptcy
proceedings, the Company adopted "Fresh Start Accounting" on March 31,
1992. As a result of the application of "Fresh Start Accounting," the
financial condition and results of operations of the Company for the dates
and periods subsequent to March 31, 1992 are not comparable to those prior
to March 31, 1992.
2. For purposes of determining this ratio, earnings consist of earnings
(loss) from operations before income tax expense (benefit) plus interest
expense and amortization of deferred financing costs. Fixed charges
consist of interest expense, plus amortization of deferred financing
costs. Earnings were insufficient to cover fixed charges by $2.5 million,
$53.6 million, $51.3 million and $41.3 million for the two month period
ended March 30, 1992, the ten month period ended January 31, 1993, fiscal
1994 and 1995, respectively.
3. EBITDA is defined as earnings from operations before interest expense,
income tax expense (benefit), depreciation and amortization. EBITDA does
not represent earnings from operating activities as defined by generally
accepted accounting principles and should not be considered as an
alternative to net income as an indicator of the Company's operating
performance or to cash flows as a measure of liquidity, but rather
provides additional information related to debt service capability.
4. Amortization expense includes the amortization of deferred financing
costs, reorganization value in excess of amounts allocable to identifiable
assets, goodwill, other intangible assets and unearned compensation.
5. The ratio of EBITDA to pro forma interest expense, and the ratio of
EBITDA less capital expenditures to pro forma interest expense, are
calculated assuming the Refinancing had occurred on February 1, 1993
(instead of December 1, 1993). Pro forma fiscal 1994 interest expense of
$24.4 million is based on the following assumptions: the interest rates
with respect to borrowings under the Bank Credit Agreement are 6.125% for
the revolving line of credit and 6.625% for the senior term loan. With
respect to the Notes the interest rate is 11.375%.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
A substantial portion of the Company's revenue is derived from new
foodservice equipment requirements generated by openings of new facilities by
national quick service restaurant chains, convenience store chains and
specialty chains or their need to replace existing equipment. Since 1991, the
foodservice equipment market has grown, primarily as a result of the domestic
and international growth of the major U.S. restaurant chains. In 1995 (the
most recent available data), the domestic operating unit growth rate of U. S.
major restaurant chains was 5%. In addition, the major quick service
restaurant chains have commenced significant international expansion. In 1995,
the operating unit growth rate of the largest U.S. restaurant chains in
international markets was approximately 17% which is nearly double its growth
rate of 9.5% in 1989. The Company's largest customer, McDonald's, alone
accounts for more than 50% of all international sales realized by the top 100
U.S. restaurant chains (source: Technomics Top 100). Also, the Company's
customers in the quick service restaurant industry have increased their demand
for newer equipment, due in part to international expansion, menu expansion
efforts, remodeling of existing stores and an increased emphasis on improved
sanitation and labor and energy efficiency. Additionally, as store closings
have slowed, management believes that there has been a decrease in the supply
of used equipment. Management believes that, given the Company's historic
relationships with the major quick service restaurant chains, the Company is
well positioned to capitalize upon these growth opportunities. Also, the
Company has made certain operational changes which management believes have
contributed to the Company's improved results.
17
<PAGE> 19
The Company's financial performance is tied closely to its major
customers' demands for large quantities of mass produced customized products,
or roll-outs. For example, from fiscal 1994 through the first six months of
fiscal 1996, the Company's improved performance can be partially attributed to
a continuing significant rise in the number of orders for refrigerated
point-of-purchase displays by soft drink bottlers, primarily those associated
with Coca-Cola and PepsiCo products. During the last six months of fiscal 1996,
the sales order backlog and demand for refrigerators from the soft drink
bottlers returned to its historic pattern of being lower in the months of
August through January as a result of lower demand from the bottler industry
for point-of-purchase units. However, during fiscal 1997, sales of
refrigeration equipment to the soft drink bottler industry increased,
particularly internationally. In the past, large roll-outs of products such as
Taylor's "clam shell" grill have been similarly significant to the Company's
performance. However, the ability to predict which customers and which
products will experience roll-outs is limited, and there can be no assurances
that in any year the Company will receive orders for any roll-outs.
Following the 1992 Reorganization, the Company recorded Reorganization
Value in Excess of Amounts Allocable to Identifiable Assets ("Reorganization
Value") of $187.3 million. The Company amortized Reorganization Value during
the three year period ending March 31, 1995, which significantly affected net
loss and stockholders' equity. Such amortization, however, did not affect the
Company's cash flow.
RESULTS OF OPERATION
The following table sets forth selected operating data as a percentage of
net revenue:
<TABLE>
<CAPTION>
Fiscal Fiscal Fiscal
1995 (%) 1996 (%) 1997 (%)
-------- -------- ---------
<S> <C> <C> <C>
Taylor 39.5 42.5 42.4
Beverage-Air 42.0 39.0 40.2
Wells/Bloomfield 14.7 14.9 14.1
World Dryer 3.8 3.6 3.3
----- ----- -----
Net revenue 100.0 100.0 100.0
----- ----- -----
Gross margin 32.1 31.5 30.4
---- ---- ----
Selling, general and administrative expenses 16.9 15.8 15.0
Amortization 20.1 5.7 0.4
Other income - - (0.1)
----- ----- -----
Earnings (loss) from operations before interest expense
and income taxes (4.9) 10.0 15.1
Interest expense, net (6.2) (5.4) (4.7)
Income taxes (3.4) (2.3) (1.9)
----- ----- -----
Earnings (loss) before extraordinary item (14.5) 2.3 8.5
----- ----- -----
</TABLE>
FISCAL YEAR ENDED JANUARY 31, 1997 COMPARED TO FISCAL YEAR ENDED JANUARY 31,
1996.
Revenue. Revenue for fiscal 1997 increased 2.2% to $401.2 million compared
with $392.5 million for the prior fiscal year. The revenue increase was
primarily attributable to increased sales of refrigeration equipment to the
bottlers and increased sales of ice cream freezer equipment. Sales were
offset, in part, by a decline in domestic sales of cooking equipment to the
Company's largest customer. Revenue attributable to sales of products for use
outside the United States increased by 19.0% in fiscal 1997, as compared with
fiscal 1996. The increase is attributable to increased sales of refrigeration
equipment to the international bottlers and increased sales of ice cream
freezer and cooking equipment to the Company's largest customer. Fiscal 1997
revenue from sales of products for use outside the United States constituted
30.3% of revenue compared with 26.1% in fiscal 1996. The Company's largest
customer experienced significant growth over the last several years. Although
the Company is no longer the sole supplier of two-sided cooking grills to this
customer, it has continued to receive a dominant share of that business. There
is no assurance that the Company will maintain such dominant share.
18
<PAGE> 20
Gross Margin. Gross margin for fiscal 1997 decreased 1.3% to $122.1
million, compared with $123.7 million in fiscal 1996. As a percent of revenue,
gross margin declined from 31.5% in fiscal 1996 to 30.4% in fiscal 1997. The
decline in gross margin as a percent of of revenue was primarily due to a
higher percentage of sales to the soft drink bottler market which carry lower
gross margins, costs associated with the new Beverage-Air plant in South
Carolina and increased price competition in the soft drink bottler market.
Selling, General and Administrative Expenses (SG&A). SG&A expenses for
fiscal 1997 decreased 3.2% to $60.1 million compared with $62.1 million in
fiscal 1996. As a percent of revenue, SG&A declined from 15.8% to 15.0% of
revenue, respectively, in fiscal 1997 as compared to fiscal 1996. The
decrease in fiscal 1997 SG&A expenses was primarily due to favorable casualty
insurance experience during fiscal 1997, lower product warranty expense and a
continuation of cost reduction efforts initiated in fiscal 1995 and 1996.
Amortization. Amortization for fiscal 1997 decreased 92.6% to $1.7,
compared with $22.3 million in fiscal 1996. The decline was due to the
completion of the amortization period of the "Excess Reorganization Value" on
March 31, 1995. The Excess Reorganization Value was amortized over three years
beginning April 1992.
Interest Expense. Interest expense for fiscal 1997 decreased 10.9% to
$18.7 million from $21.0 million in fiscal 1996. The decrease is principally
due to a decrease in total borrowings.
Income Taxes. Income tax expense for fiscal 1997 decreased 16.6% to $7.9
million from $9.5 million in fiscal 1996. The decrease in tax expense is
largely attributable to the recognition of tax benefits relatead to deferred
tax assets of $7.2 million of which $5.1 million was due to a reduction in the
valuation allowance for deferred tax assets. This effect was offset partially
by increased earnings before taxes and amortization of approximately $3.0
million, which increased income tax expense by approximately $1.2 million.
FISCAL YEAR ENDED JANUARY 31, 1996 COMPARED TO FISCAL YEAR ENDED JANUARY 31,
1995.
Revenue. Revenue for fiscal 1996 increased 5.6% to $392.5 million compared
with $371.7 million for the prior fiscal year. The revenue increase was
primarily attributable to increased sales of ice cream freezer equipment and
increased sales of cooking equipment. Sales were offset, in part, by a decline
in sales of refrigeration equipment to the domestic bottlers. Revenue
attributable to sales of products for use outside the United States increased
by 21.1% in fiscal 1996, as compared with fiscal 1995. The increase is
attributable to increased sales of refrigeration equipment to the international
bottlers and increased sales of ice cream freezer and cooking equipment to the
Company's largest customer. Fiscal 1996 revenue from sales of products for use
outside the United Sates constituted 26.1% of revenue compared with 22.7% in
fiscal 1995.
Gross Margin. Gross margin for fiscal 1996 increased 3.7% to $123.7
million, compared with $119.3 million in fiscal 1995. As a percent of revenue,
gross margin declined from 32.1% in fiscal 1995 to 31.5% in fiscal 1996. The
decline in gross margin percentage was largely due to higher direct material
costs, primarily stainless steel.
Selling, General and Administrative Expenses (SG&A). SG&A expenses for
fiscal 1996 decreased 1.1% to $62.1 million compared with $62.8 million in
fiscal 1995. As a percent of revenue, SG&A declined from 16.9% to 15.8% of
revenue, respectively, in fiscal 1996 as compared to fiscal 1995. The
decrease in fiscal 1996 SG&A expenses was primarily due to favorable casualty
insurance experience during fiscal 1996 and a continuation of cost reduction
efforts initiated in fiscal 1995 and 1996. In addition, the Company received a
net cash settlement of $2.1 million in December 1995 for a trade receivable
from a Russian customer written-off during 1995. The settlement resulted from
a fiscal 1991 sale of $5.1 million and is net of sales commissions and
collection fees. The settlement was largely offset on the income statement by
an increase in the provision for bad debt allowance for a foreign note
receivable of $1.6 million and an increase in the general allowance for foreign
accounts receivable of $0.2 million.
19
<PAGE> 21
Amortization. Amortization for fiscal 1996 decreased 70.3% to $22.3,
compared with $75.0 million in fiscal 1995. The decline was due to the
completion of the amortization period of the "Excess Reorganization Value" on
March 31, 1995. This amortization amounted to approximately $62 million
annually. The Excess Reorganization Value was amortized over three years
beginning April 1992.
Interest Expense. Interest expense for fiscal 1996 decreased 8.6% to
$21.0 million from $23.0 million in fiscal 1995. The decrease is principally
due to a decrease in total borrowings.
Income Taxes. Income tax expense for fiscal 1996 decreased 25.5% to $9.5
million from $12.7 million in fiscal 1995. The decrease was attributable to
the recognition of a $5.1 million deferred tax asset. The impact of this
recognition was to reduce the effective tax rate from 37.7% to 23.3%, after
consideration of non-deductible amortization expenses.
LIQUIDITY AND CAPITAL RESOURCES
Total cash flows provided by operations were $31.6 million, $40.8 million
and $24.0 million in fiscal 1995, 1996 and 1997, respectively. These amounts
primarily represent net earnings (loss) plus depreciation and amortization and
the impact of cash flows from working capital requirements. Total cash flows
from operations for fiscal 1997 reflected an increased use of working capital,
primarily as a result of an increase in international receivables, which carry
longer terms.
Net cash used in investing activities amounted to $10.0 million, $7.7
million, and $7.7 million in fiscal 1995, 1996 and 1997, respectively. The
Company's capital expenditures in fiscal 1997 of $9.2 million increased
compared to the prior year as a result of the addition of the Beverage-Air
manufacturing facility in Honea Path, South Carolina. The Company expects
capital spending to be approximately $7.5 million in the next fiscal year. It
is anticipated that the expenditures for tooling, machinery and equipment will
be funded in part from short term investments of $3.1 million made by the
Company from proceeds from Industrial Project Revenue Bond financing (discussed
below).
Net cash used in financing activities amounted to $20.3 million, $5.2
million and $37.9 million in fiscal 1995, 1996 and 1997, respectively. In
fiscal 1996, the Company repaid in full its senior term loan of $15.0 million,
repaid $7.0 million of its line of credit and acquired $5.0 million of its
Notes. In fiscal 1997, the Company acquired $31.0 million of its Notes. The
Company recorded an extraordinary loss of $1.8 million (net of taxes) for the
premium paid on the early extinguishment of the Notes. In February 1995, the
Company incurred $6.5 million in letter of credit obligations. The letter of
credit supports an issue of $6.4 million of Industrial Project Revenue Bonds to
enable the Company to finance the acquisition, installation, improvement and
equipping of production facilities at its Beverage-Air division in Spartanburg,
South Carolina. On December 1, 1996, the Company entered into a credit
agreement with several banks and Bank of America, Illinois, as agent for the
banks (the "BA Credit Agreement"). The BA Credit Agreement provides for a $60
million credit facility which includes an unsecured line of credit of $45
million and a $15 million facility for letters of credit. The BA Credit
Agreement was used to refinance the Company's Bank Credit Agreement.
As of January 31, 1997, the Company had no borrowings under the BA Credit
Agreement for working capital purposes and $11.9 million for letters of credit.
The amount available for additional borrowings under this facility was
approximately $45.0 million at January 31, 1997. Interest rates under the Bank
Credit Agreement equal the Bank Rate, as defined (5.50% at January 31, 1997)
plus 0.40% for the revolving line of credit (at the Company's option the
interest can be the lender's base rate (8.25% at January 31, 1997) for the
revolving line of credit). The Company reported working capital of $42.1
million at January 31, 1997. The Company's average operating working capital
(defined as average monthly gross accounts receivable and net inventory less
accounts payable) as a percentage of sales declined from 26% during fiscal 1994
to 22% during fiscal 1997.
In August 1996, the Company redeemed its $6.5 million Village of Rockton,
Illinois Industrial Project Revenue Bonds. The redemption was made due to the
Company increasing its planned capital expenditures to include a service and
sales training center in Rockton, Illinois. The redemption was made to comply
with the Internal Revenue Code ("IRC").
20
<PAGE> 22
The Company's earnings (loss) from operations were insufficient to cover
fixed charges by $41.3 million in fiscal 1995. The Company's earnings from
operations were sufficient to cover fixed charges by $18.4 million and $42.0
million for fiscal 1996 and fiscal 1997, respectively. The earnings
insufficiency in fiscal 1995 was primarily due to the Company's amortization of
intangible assets, principally Reorganization Value. This amortization did not
impact the Company's cash flows and the Company's earnings before interest,
taxes, depreciation and amortization (EBITDA) exceeded its fixed charges by
$35.8 million, $43.3 million and $48.3 million for fiscal 1995, 1996 and 1997,
respectively.
The Company had four financial covenants to meet at January 31, 1997 under
the BA Credit Agreement dated December 1, 1993 -- a liquidity ratio covenant at
January 31, 1997 of at least 1.25:1.00; a senior funded debt to cash flow ratio
covenant as of January 31, 1997 of not greater than 2.00:1.00; a total funded
debt to cash flow ratio for the twelve months ended January 31, 1997 of not
greater than 3.50:1.00; and an interest coverage ratio of at least 2.00:1.00.
The Company met each of these covenants as it reported a liquidity ratio of
18.22:1.00 at January 31, 1997; a senior funded debt to cash flow ratio of
0.09:1.00 as of January 31, 1997; a total funded debt to cash flow ratio for
the twelve months ended January 31, 1997 of 2.28:1.00; and an interest coverage
ratio for the twelve months ended January 31, 1997 of 3.41:1.00.
Management believes that the sources of capital described above, together
with internally generated funds, will be adequate to meet the Company's
anticipated capital and cash requirements for the foreseeable future, including
debt service and corporate income taxes. The Company experiences certain
seasonal fluctuations in its working capital requirements. See "Item I -
Seasonality."
IMPACT OF INFLATION
While management does not believe that inflation has had a material impact
on the Company's operations during fiscal 1997, the Company has experienced
increased material costs, especially with respect to stainless steel.
Management believes that the Company may face increasing costs in the upcoming
fiscal year as a result of inflation which the Company may not fully be able to
offset with increased productivity or pass on to its customers due to
competitive factors within the industry.
ACCOUNTING STANDARDS
The 1992 Reorganization became effective on March 31, 1992. From an
accounting and legal standpoint, this event resulted in the presentation of
financial information for a new legal entity (the post-Reorganization Company).
In accordance with the American Institute of Certified Public Accountants
Statement of Position 90-7, "Financial Reporting by Entities in Reorganization
Under the Bankruptcy Code" ("SOP 90-7"), the Company adopted "Fresh Start
Accounting." Accordingly, all assets and liabilities were restated to reflect
their reorganization value at the date of the 1992 Reorganization.
Accordingly, the Company's Consolidated Balance Sheets at and after March 31,
1992 and its Consolidated Financial Statements for periods after March 31, 1992
are not comparable to the Consolidated Financial Statements for prior periods.
As of March 31, 1992, the Company adopted the Financial Accounting
Standards Board's Statement of Financial Accounting Standards ("SFAS") No. 106,
"Employers' Accounting for Postretirement Benefits Other Pensions."
21
<PAGE> 23
Effective February 1, 1993, the Company adopted SFAS No. 109, "Accounting
for Income Taxes." No cumulative effect adjustment was required as management
believes that the difference in deferred income taxes under SFAS No. 109 was
not material.
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of" was issued in March 1995 and is effective
for the Company's fiscal year 1997. Management has reviewed the Statement and
determined that its provisions do not have a material adverse effect upon the
financial condition or results of operations of the Company.
SFAS No. 123, "Accounting for Stock-Based Compensation," a fair value
based method, is effective for transactions entered into in fiscal years that
begin after December 15, 1995. Management has reviewed the Statement and plans
to continue using Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," an intrinsic value based method, for plans
currently adopted, and has determined the pro forma disclosure provisions of
SFAS No. 123, are not material.
SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS UNDER THE SECURITIES LITIGATION
REFORM ACT OF 1995
Except for historical information contained herein, this Annual Report on
Form 10-K, contains forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. These statements are subject to
certain risks and uncertainties that could cause actual results to differ
materially from those anticipated and discussed herein. These factors include:
general economic conditions and their impact on the growth of the quick service
restaurant and soft drink bottler industries, the Company's dependence on its
major customer and key management personnel, the effects of competition, the
significance of the Company's outstanding indebtedness and other factors
detailed elsewhere from time to time in the Company's filings with the
Securities and Exchange Commission.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following pages contain the Financial Statements and Supplementary
Data as required by Item 8 of Part II of Form 10-K.
22
<PAGE> 24
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of Specialty Equipment Companies,
Inc.:
We have audited the accompanying consolidated balance sheets of Specialty
Equipment Companies, Inc. (the "Company") and its subsidiaries as of January
31, 1996 and 1997, and the related consolidated statements of operations,
stockholders' equity (deficit) and cash flows for each of the years in the
three-year period ended January 31, 1997. In connection with our audits of the
consolidated financial statements, we also have audited the financial statement
schedule as listed in the accompanying index. These consolidated financial
statements and financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement schedule based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Specialty
Equipment Companies, Inc. and its subsidiaries as of January 31, 1996 and 1997
and the results of their operations and their cash flows for each of the years
in the three-year period ended January 31, 1997, in conformity with generally
accepted accounting principles. Also in our opinion, the related financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly in all material
respects, the information set forth therein.
KPMG PEAT MARWICK LLP
Chicago, Illinois
March 17, 1997
23
<PAGE> 25
SPECIALTY EQUIPMENT COMPANIES, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
JANUARY 31,
1996 1997
----------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 28,447 $ 7,787
Accounts receivable, net 44,969 53,486
Inventories 51,514 55,311
Deferred tax assets, net 5,105 10,210
Other current assets 5,672 5,637
--------- --------
Total current assets 135,707 132,431
Property, plant and equipment, net 29,451 34,217
Restricted cash equivalents 5,873 3,059
Intangibles, net 7,667 5,861
Other assets 1,537 1,348
--------- --------
Total assets $ 180,235 $176,916
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current installments of long-term debt $ 174 $ 141
Accounts payable 21,340 25,371
Accrued liabilities 67,167 59,852
Accrued income taxes 4,199 4,939
---------- ---------
Total current liabilities 92,880 90,303
Long-term debt, excluding current installments 193,041 155,440
Other non-current liabilities 1,935 2,404
Stockholders' equity (deficit):
Common stock, $.01 par value, 25,000,000 shares authorized,
17,314,560 and 17,985,918 shares issued and outstanding at
January 31, 1996 and 1997, respectively 173 180
Additional paid-in capital 50,895 54,501
Accumulated deficit (157,921) (125,583)
Foreign currency translation adjustment (232) (191)
Other (536) (138)
---------- ---------
Total stockholders' deficit (107,621) (71,231)
---------- ---------
Total liabilities and stockholders' equity (deficit) $ 180,235 $176,916
========== =========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
24
<PAGE> 26
SPECIALTY EQUIPMENT COMPANIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED JANUARY 31,
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Net revenue $371,730 $392,512 $401,230
Cost of sales 252,457 268,765 279,120
-------- -------- --------
Gross margin 119,273 123,747 122,110
Selling, general and administrative expenses 62,753 62,085 60,096
Amortization 74,986 22,285 1,653
Other income, net (155) (2) (362)
-------- -------- --------
Earnings (loss) from operations before interest
expense and income taxes (18,311) 39,379 60,723
Interest expense, net 22,997 21,010 18,714
-------- ------ ------
Earnings (loss) from operations before income taxes (41,308) 18,369 42,009
Income taxes 12,688 9,458 7,887
-------- ------ ------
Earnings (loss) before extraordinary item (53,996) 8,911 34,122
Extraordinary item - (218) (1,784)
-------- -------- --------
Net earnings (loss) $(53,996) $ 8,693 $ 32,338
======== ======== ========
Net earnings (loss) per common and dilutive common
equivalent share before extraordinary item $ (3.29) $ 0.42 $ 1.59
Extraordinary item - (.01) (.08)
-------- -------- --------
Net earnings (loss) per common and dilutive common
equivalent share $ (3.29) $ 0.41 $ 1.51
======== ======== ========
Average number of common and dilutive common
equivalent shares outstanding 16,431 21,263 21,415
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
25
<PAGE> 27
SPECIALTY EQUIPMENT COMPANIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOREIGN
ADDITIONAL CURRENCY
COMMON PAID-IN ACCUMULATED TRANSLATION
STOCK CAPITAL DEFICIT ADJUSTMENTS OTHER TOTAL
----- ----------- ----------- ------------- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Balance at January 31, 1994 $164 $45,942 $(112,618) $(167) $(562) $(67,241)
Net loss - - (53,996) - - (53,996)
Exercise of stock options - 20 - - - 20
Amortization of unearned
compensation - - - - 72 72
Minimum pension liability
adjustment - - - - 458 458
Foreign currency
translation adjustment - - - (108) - (108)
------ --------- ---------- ------- ------- ---------
Balance at January 31, 1995 164 45,962 (166,614) (275) (32) (120,795)
Net earnings - - 8,693 - - 8,693
Exercise of stock options 9 860 - - - 869
Tax benefit of stock options - 4,073 - - - 4,073
Minimum pension liability
adjustment - - - - (504) (504)
Foreign currency
translation adjustment - - - 43 - 43
------ --------- ---------- ------- ------- ---------
Balance at January 31, 1996 173 50,895 (157,921) (232) (536) (107,621)
Net earnings - - 32,338 - - 32,338
Exercise of stock options 7 789 - - - 796
Tax benefit of stock options - 3,354 - - - 3,354
Cancellation of stock
options - (1,052) - - - (1,052)
Utilization of net
operating loss
carryforward - 515 - - - 515
Minimum pension liability
adjustment - - - - 398 398
Foreign currency
translation
adjustment - - - 41 - 41
------ --------- ---------- ------- ------- ---------
Balance at January 31, 1997 $180 $54,501 $(125,583) $(191) $ (138) $ (71,231)
====== ========= ========== ======= ======= ==========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
26
<PAGE> 28
SPECIALTY EQUIPMENT COMPANIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED JANUARY 31,
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $(53,996) $ 8,693 $ 32,338
Items not affecting cash:
Depreciation 3,954 4,309 4,616
Amortization 74,986 22,414 2,303
Deferred taxes - (5,105) (5,105)
Utilization of net operating loss carryforward 1,090 1,742 1,092
Gain from asset sales (63) (2) (32)
Changes in current assets and liabilities (excluding
effects of business acquired):
Accounts receivable 1,007 (381) (8,027)
Inventories (4,403) 2,260 (3,341)
Other current assets (1,744) (2,249) 41
Accounts payable and other current
liabilities, excluding current installments
of long-term debt 10,737 9,118 89
-------- ------- ---------
Net cash flows provided by operating activities 31,568 40,799 23,974
Cash flows from investing activities:
Additions to property, plant and equipment (6,693) (5,666) (9,185)
Disposal of property, plant and equipment 328 198 38
Cash equivalents restricted for capital additions (3,663) (2,210) 2,814
Net assets of business acquired - - (1,321)
-------- ------- ---------
Net cash used in investing activities (10,028) (7,678) (7,654)
-------- ------- ---------
Cash flows from financing activities:
Net increase (decrease) in revolving credit facilities (11,654) (6,967) -
Proceeds from long-term debt 6,500 6,400 -
Repayments of long-term debt (15,083) (5,397) (37,601)
Financing costs (129) (111) -
Proceeds from exercise of stock options 20 869 796
Cancellation of stock options - - (1,052)
-------- ------- ---------
Net cash used in financing activities (20,346) (5,206) (37,857)
-------- ------- ---------
Other, net (753) (2,712) 877
-------- ------- ---------
Net increase (decrease) in cash 441 25,203 (20,660)
Cash:
Beginning of period 2,803 3,244 28,447
-------- ------- ---------
End of period $ 3,244 $28,447 $ 7,787
======== ======= =========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
27
<PAGE> 29
SPECIALTY EQUIPMENT COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1995, 1996, AND 1997
1. ORGANIZATION OF BUSINESS
Specialty Equipment Companies, Inc. (the "Company") is a domestic
manufacturer of a diversified line of highly engineered commercial and
institutional foodservice equipment that is used by a variety of quick service
restaurant chains, convenience store chains, specialty chains, soft drink
bottlers and institutional foodservice operators.
The Company was incorporated on November 28, 1984 in the State of
Delaware. All of the significant U. S. operations are divisions of the
Company. FM Manufacturing, Inc. (formerly known as Market Forge Co.) is a
wholly-owned subsidiary, but has not had any operations since October 1993.
World Dryer Co., Limited is a division of Bloomfield Industries Canada Limited,
which is a wholly-owned subsidiary of the Company. Taylor Freezer
International, S.r.l., Taylor Freezer (Cyprus) Ltd. and Taylor-Chicago Corp.
are wholly-owned subsidiaries of the Company. Included in revenue for fiscal
1995, 1996 and 1997 are $84.5, $102.3 and $121.7 million, respectively, of
export sales, principally to Europe, Asia and Latin America. Sales to one
customer approximated 18%, 22% and 20%, respectively, of revenue in fiscal
years 1995, 1996 and 1997.
2. THE 1992 RECAPITALIZATION AND RESTRUCTURING
On December 24, 1991, the Company filed its petition for relief under
Chapter 11 of the federal bankruptcy laws in the United States Bankruptcy Court
for the Northern District of Illinois, Western Division. On March 17, 1992,
the confirmation order with respect to the Company's plan of reorganization
("POR") was entered by the court. The Company emerged from Chapter 11 and the
POR became effective on March 31, 1992.
On the effective date of the POR and in accordance with the American
Institute of Certified Public Accountants Statement of Position 90-7,
"Financial Reporting by Entities in Reorganization Under the Bankruptcy Code"
("SOP 90-7"), the Company adopted "Fresh Start Accounting." Accordingly, all
assets and liabilities were restated to reflect their reorganization value at
the date of reorganization.
The Company estimated its reorganization value for "Fresh Start
Accounting" purposes ("Fresh Start Value") at $284 million before consideration
of general post-petition liabilities. In determining its estimate of Fresh
Start Value, two financial advisors assisted the Company. Subsequent to March
31, 1992 the Company's estimates of the fair value of certain contingent
liabilities and assets as of March 30, 1992 were more definitively determined,
resulting in adjustments to the "Fresh Start Accounting" allocation of
aggregate value of approximately $5.9 million. These adjustments related
primarily to the relocation and impairment in value of the Bloomfield division
and various professional fees contingent upon the successful reorganization and
emergence from bankruptcy of the Company.
Following the 1992 Reorganization, the Company recorded Reorganization
Value in Excess of Amounts Allocable to Identifiable Assets ("Reorganization
Value") of $187.3 million. The Company amortized Reorganization Value during
the three year period ending March 31, 1995, which significantly affected net
loss and stockholders' equity. Such amortization, however, did not affect the
Company's cash flow.
28
<PAGE> 30
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Fresh Start Accounting
The Company has implemented, as of March 31, 1992, the recommended
accounting for entities emerging from Chapter 11 reorganization set forth in
SOP 90-7.
b. Principles of Consolidation and Report Preparation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany balances and
transactions are eliminated in consolidation. Certain reclassifications have
been made to the prior years' financial statements to conform with the current
year presentation.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect reported results of operations, financial position and
various disclosures. Actual results could differ from those estimates.
c. Cash and Cash Equivalents
The Company considers all short-term deposits with a maturity of three
months or less to be cash equivalents.
d. Inventories
The Company values domestic inventories at the lower of last-in, first-out
(LIFO) cost or market.
e. Property, Plant and Equipment
Property, plant and equipment are stated at cost and are depreciated over
the estimated useful lives of the respective assets using the straight-line
method for financial statement purposes and using the modified accelerated cost
recovery system for income tax purposes. Depreciable lives are principally 40
years for buildings and building improvements and 10 to 14 years for machinery
and equipment. Repair and maintenance costs are expensed as incurred.
f. Restricted Cash Equivalents
Restricted cash equivalents represent amounts designated for capital
additions which were received from the placement of Industrial Project Revenue
Bonds in excess of amounts expended on the projects through January 31, 1997.
The amounts are invested in tax exempt, cash equivalent instruments.
g. Intangible Assets
Intangible assets relate to the businesses acquired, proprietary
trademarks and patents, goodwill and covenant not compete. The intangible
assets are being amortized over an average useful life of three to 15 years
using the straight- line method.
h. Warranty Reserves
Warranty reserves are accrued at the time of sale based on historical
experience and current product mix. Product warranties generally provide one
year coverage on parts and 90 days on labor, with certain exceptions.
29
<PAGE> 31
SPECIALTY EQUIPMENT COMPAINES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
i. Income Taxes
The asset and liability method is used in accounting for income taxes.
Under this method deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit carryforwards.
j. Foreign Currency Translation
The accounts of Bloomfield Industries Canada Limited are translated into
U.S. dollars in accordance with Statement of Financial Accounting Standards
("SFAS") No. 52. Assets and liabilities are translated at the year-end
exchange rate. Revenue and expenses are translated using a weighted average
rate for the year. The adjustment resulting from translation is reflected as
an adjustment to equity in the accompanying consolidated financial statements.
Gains and losses from foreign currency transactions are included in results of
operations currently.
k. Statements of Cash Flows
Cash paid for interest and income taxes is as follows: ($ in thousands)
<TABLE>
<CAPTION>
YEARS ENDED JANUARY 31,
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Interest, net $23,238 $21,121 $19,329
Income taxes 14,543 10,826 6,580
</TABLE>
l. Pensions and Postretirement Benefits
In connection with the adoption of "Fresh Start Accounting," the Company
adopted SFAS No. 106, "Employers' Accounting for Postretirement Benefits other
than Pensions," which requires that the cost of these benefits be recognized in
the financial statements over an employee's term of service with the Company.
The Company elected to recognize the entire liability concurrent with the
adoption of "Fresh Start Accounting" on March 31, 1992.
The Company offers pension plans which cover substantially all employees
and a postretirement medical benefit plan to retirees at one of its divisions.
The Company has recognized the liabilities for these plans pursuant to an
actuarial valuation of the benefits and costs of these programs using costs,
asset return and inflation factors deemed appropriate and reasonable. The
discount rate used to determine the liabilities recognized was 7.25% in 1996
and 7.75% in 1997. The benefits for the postretirement medical benefit plan
are paid on a current basis and are not prefunded.
m. Fair Value of Financial Instruments
The carrying amounts of cash and cash equivalents, accounts receivable,
accounts payable and accrued liabilities approximate fair value because of the
short maturity of these financial instruments. The fair value, based on market
prices, of the Senior Subordinated Notes (as defined in Note 9) is $165.4
million (face value $149.0 million). The Bank Credit Agreement (as defined in
Note 9) is at variable interest rates tied to market rates and accordingly, the
Company considers the fair value to be the same as its carrying value.
30
<PAGE> 32
SPECIALTY EQUIPMENT COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
n. Earnings (Loss) Per Share of Common Stock
Earnings (loss) per share of common stock is computed on the basis of the
weighted average number of common stock and dilutive common stock equivalents
outstanding during the period. For fiscal 1995 the shares that would be issued
if any currently exercisable warrants or options were exercised are not
included in common shares outstanding as the effect would be antidilutive.
o. Stock Option Plans
Prior to February 1, 1996, the Company accounted for its stock option plan
in accordance with the provisions of Accounting Principles Board ("APB")
Opinion No. 25, Accounting for Stock Issued to Employees, and related
interpretations. As such, compensation expense would be recorded on the date
of grant only if the current market price of the underlying stock exceeded the
exercise price. On February 1, 1996 the Company adopted SFAS No. 123,
Accounting for Stock Based Compensation, which permits entities to recognize as
expense over the vesting period the fair value of stock-based awards on the
date of grant. Alternatively, SFAS No. 123 also allows entities to continue to
apply the provisons of APB No. 25 and provide pro forma net income and pro
forma earnings per share disclosures for employee stock option grants made in
1995 and future years as if the fair-value-based method defined in SFAS No. 123
had been applied. The Company has elected to continue to apply the provisions
of APB Opinion No. 25.
p. Research and Development Expenses
Research and development costs are charged to expense when incurred.
Total research and development costs charged to expense were $4.2 million, $4.1
million and $4.8 million in fiscal 1995, 1996 and 1997, respectively.
q. Revenue Recognition
The Company recognizes revenue from product sales upon shipment to the
customer.
r. Advertising Costs
Advertising costs are charged to expense when incurred. Total advertising
costs charged to expense were $5.2 million, $5.0 million and $7.6 million in
fiscal 1995, 1996 and 1997, respectively.
4. ACCOUNTS RECEIVABLE
Accounts receivable consist of the following:
<TABLE>
<CAPTION>
JANUARY 31,
1996 1997
---- ----
($ in thousands)
<S> <C> <C>
Accounts receivable $50,498 $58,145
Less: allowance for doubtful accounts 5,529 4,659
------- -------
Total $44,969 $53,486
======= =======
</TABLE>
Substantially all of the Company's receivables represent sales made
directly, or indirectly through distributors, to the foodservice and beverage
industry.
31
<PAGE> 33
SPECIALTY EQUIPMENT COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
JANUARY 31,
1996 1997
---- ----
<S> <C> <C>
($ in thousands)
Raw material $26,052 $27,082
Work in process 6,976 8,005
Finished goods 18,486 20,224
------- -------
Subtotal 51,514 55,311
Less: excess of
FIFO cost over LIFO cost - -
------- -------
Total $51,514 $55,311
======= =======
</TABLE>
LIFO has a de minimis effect in fiscal 1996 and 1997.
6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
JANUARY 31,
1996 1997
---- ----
($ in thousands)
<S> <C> <C>
Land $ 897 $ 897
Buildings and building
improvements 16,187 17,004
Machinery and equipment 22,758 26,289
Construction in progress 4,091 8,999
Fixed assets under capital leases 705 705
------- -------
Total 44,638 53,894
Less: accumulated
depreciation and amortization 15,187 19,677
------- -------
Net property, plant and equipment $29,451 $34,217
======= =======
</TABLE>
7. INTANGIBLES
<TABLE>
<CAPTION>
JANUARY 31,
1996 1997
---- ----
<S> <C> <C>
Intangibles consist of the following:
Patents $ 1,568 $ 991
Other intangibles 48,206 49,571
Deferred pension costs 1,904 1,603
------- -------
Total 51,678 52,165
Less: accumulated amortization 44,011 46,304
------- -------
Net intangibles $ 7,667 $ 5,861
======= =======
</TABLE>
32
<PAGE> 34
SPECIALTY EQUIPMENT COMPAINES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. ACCRUED LIABILITIES
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
JANUARY 31,
1996 1997
---- ----
($ in thousands)
<S> <C> <C>
Accrued insurance premiums and self-insurance reserves $15,065 $13,150
Accrued payroll and other compensation 14,690 12,123
Accrued warranty reserves 7,699 7,052
Accrued discontinued product lines 5,337 4,997
Accrued retiree medical expense 4,755 5,854
Accrued interest 3,526 2,911
Other 16,095 13,765
------- -------
Total $67,167 $59,852
</TABLE> ======= =======
9. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
JANUARY 31,
1996 1997
---- ----
($ in thousands)
<S> <C> <C>
Revolving line of credit (a) $ - $ -
11-3/8% senior subordinated notes due 2003 (b) 180,000 149,040
Industrial project revenue bonds due 2008 (c) 12,900 6,400
Capitalized leases (d) 315 141
---------- ---------
193,215 155,581
Less: current installments 174 141
---------- ---------
Total long-term debt $ 193,041 $ 155,440
========== =========
</TABLE>
(a) BA Credit Agreement
The BA Credit Agreement provides for an unsecured $45.0 million revolving
line of credit, as amended, and a $15.0 million letter of credit facility. As
of January 31, 1997 the Company had no borrowings on its revolving line of
credit. The BA Credit Agreement expires on November 30, 1998.
Interest rates under the BA Credit Agreement equal the Bank Rate, as
defined (5.50% at January 31, 1997) plus 0.40% for the revolving line of credit
(at the Company's option the interest can be the lender's base rate (8.25% at
January 31, 1997) for the revolving line of credit.)
33
<PAGE> 35
SPECIALTY EQUIPMENT COMPANIES,INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(b) Senior Subordinated Notes
In December 1993 the Company issued $185.0 million, 11-3/8% Senior
Subordinated Notes. Interest is payable semiannually on June 1 and December 1.
The principal is due in 2003. The Notes are unsecured and are subordinate to
the Bank Credit Agreement. The Notes contain various financial and operational
covenants and early redemption provisions and prohibit the payment of
dividends. In July 1995, the Company acquired $5 million of the Notes on the
open market. In August 1996, the Company acquired $31 million of the Notes on
the open market. The loss on the early extinguishment of the debt, including
deferred financing costs associated with its issuance, is reflected in the
statements of operations as an extraordinary item.
(c) Industrial Project Revenue Bonds
In September 1994 the Company issued $6.5 million of variable interest
rate Industrial Project Revenue Bonds due 2008 ("2008 IRBs"). In August 1996
the Company redeemed the 2008 IRBs. In February 1995 the Company issued $6.4
million of variable interest rate Industrial Project Revenue Bonds ("2009
IRBs"). Interest is payable monthly and the principal is due in 2009. The
2009 IRBs are secured by an irrevocable letter of credit for $6.5 million.
Proceeds from the issuance not currently necessary for the capital improvement
project are invested in tax exempt, cash equivalent instruments. The invested
balance at January 31, 1997 was $3.1 million and is classified as a long-term
asset on the Company's balance sheet.
(d) Leased property and leasehold interests
Leased property and leasehold interests under capital leases are
noncancelable leases as of January 31, 1997 are as follows: ($ in thousands)
<TABLE>
<CAPTION>
FISCAL YEAR ENDING CAPITAL OPERATING
JANUARY 31 LEASES LEASES
------------------ ------- ---------
<S> <C> <C>
1998 $ 147 $ 1,927
1999 - 1,430
2000 - 1,083
2001 - 667
2002 - 460
Thereafter - 464
------- --------
Total payments 147 $ 6,031
========
Less: interest $ 6
-------
Total capital leases $ 141
=======
</TABLE>
Rent expense under operating leases amounted to $1,905, $2,132 and
$2,330 for the fiscal years ended January 31, 1995, 1996 and 1997,
respectively.
34
<PAGE> 36
SPECIALTY EQUIPMENT COMPAINES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUE)
10. INCOME TAXES
The components of income tax expense consist of the following:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
------- -------- -----
($ in thousands)
<S> <C> <C> <C>
Year ended January 31, 1995
Federal $10,648 $ - $10,648
State 1,888 - 1,888
Foreign 152 - 152
------- ------- -------
Total $12,688 $ - $12,688
======= ======= =======
Year ended January 31, 1996
Federal $12,392 $(4,319) $ 8,073
State 2,056 (786) 1,270
Foreign 115 - 115
------- ------- -------
Total $14,563 $(5,105) $ 9,458
======= ======= =======
Year ended January 31, 1997
Federal $11,270 $(4,319) $ 6,951
State 1,544 (786) 758
Foreign 178 - 178
------- ------- -------
Total $12,992 $(5,105) $ 7,887
======= ======= =======
</TABLE>
Income tax expense differed from the amounts computed by applying the
U.S. Federal income tax rate of 35 percent to pretax loss as a result of the
following: ($ in thousands)
<TABLE>
<CAPTION>
YEARS ENDED JANUARY 31,
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Tax expense (benefit) computed at the Federal
statutory rate $(14,458) $6,429 $14,703
Increase (reduction) in income taxes
resulting from:
Amortization of reorganization value in
excess of amounts allocable to identifiable assets 20,846 3,093 -
Valuation of temporary differences 6,290 - (8,460)
State income taxes, net of Federal
income tax benefit 1,289 1,415 1,149
Other, net (1,279) (1,479) 495
---------- ---------- --------
Provision for income taxes $12,688 $9,458 $7,887
========== ========== ========
</TABLE>
The benefit in fiscal 1996 and 1997 of the utilization of $2.8 million
(tax effected $1.1 million) of net operating loss ("NOL") carryforwards that
existed prior to the POR reduced the reorganization value in excess of amounts
allocable to identifiable assets through fiscal 1996 until such balances were
exhausted and thereafter reduced other intangibles until exhausted and
thereafter beginning in fiscal 1997 were recorded as a direct addition to
additional paid-in capital.
35
<PAGE> 37
SPECIALITY EQUIPMENT COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities included in other current
assets are as follows:
<TABLE>
<CAPTION>
YEARS ENDED
Deferred taxes: ($ in thousands) JANUARY 31,
1996 1997
------------------------
<S> <C> <C>
Deferred tax assets: $ 2,145 $ 1,805
Allowance for doubtful accounts 13,215 13,365
Intangibles, due to differences in amortization
Accrued liabilities, principally due to accruals for compensated absences,
product liability reserves, warranties, pension, discontinued product lines,
plant relocation and postretirement benefits other than pensions 16,770 14,985
Net operating loss carryforwards 7,380 6,280
-------- --------
Total gross deferred tax assets 39,510 36,435
Less valuation allowance (30,585) (22,125)
-------- --------
Net deferred tax assets 8,925 14,310
-------- --------
Deferred tax liabilities:
Inventories, principally due to additional costs inventoried for tax purposes
pursuant to the Tax Reform Act of 1986 and tax basis difference resulting
from the 1992 reorganization (1,995) (2,525)
Property, plant and equipment, principally due to differences in depreciation (1,825) (1,575)
-------- --------
Total deferred tax liabilities (3,820) (4,100)
-------- --------
Net deferred taxes $ 5,105 $ 10,210
======== ========
</TABLE>
The valuation allowance for deferred tax assets as of February 1, 1994 was
$21.3 million. The net change in the total valuation allowance for fiscal 1995
and 1997 was an increase of $9.3 million and a decrease of $8.5 million,
respectively. There was no change in the valuation allowance in fiscal 1996.
The Company believes that the valuation allowance is sufficient to reduce the
net deferred tax asset to an amount that will more likely than not be realized.
The Company will continue to review the need for this valuation allowance and
make adjustments as deemed appropriate. The Company has approximately $16.1
million in NOL carryforwards. However, there are a number of issues that may
arise which, if determined adversely, could limit the amount and/or use of
available NOLs. These issues include the availability of certain deductions
previously claimed by the Company and the applicability of certain provisions
of the Internal Revenue Code of 1986, as amended, (the "IRC") generally limiting
the availability of NOL carryforwards following certain changes in ownership.
The NOL carryforwards are available through fiscal 2008. Earnings before income
taxes include foreign income of $404,000, $297,000 and $493,000 in the years
ended January 31, 1995, 1996 and 1997, respectively.
36
<PAGE> 38
SPECIALITY EQUIPMENT COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. PENSION AND BENEFIT PLANS
Pension and Profit Sharing Plans
The Company has non-contributory defined benefit plans in place covering
substantially all employees. Annual contributions to the plans are equal to
the minimum amount required to meet the funding standards of the Internal
Revenue Code. These contributions are deductible for Federal income tax
purposes. Benefits for these plans are based primarily on years of service or
qualifying compensation, or both, of the participants. The plans' assets are
invested in various pooled arrangements consisting of equities, fixed income,
real estate, venture capital and short-term obligations.
The following sets forth the plans' funded status and amounts recognized
in the Company's consolidated financial statements as of January 31:
<TABLE>
<CAPTION>
1996 1997
------------------------- ------------------------------------------
ASSETS ACCUMULATED
EXCEED BENEFITS ASSETS ACCUMULATED
ACCUMULATED EXCEED EXCEED ACCUMULATED BENEFITS EXCEED
BENEFITS ASSETS BENEFITS ASSETS
------------ ----------- -------------------- --------------------
<S> <C> <C> <C> <C>
Actuarial present value of benefit
obligations: ($ in thousands)
Accumulated benefit obligations including
vested benefits of $27,202 in 1996 and
$27,561 in 1997 $ - $27,679 $20,461 $ 7,617
Projected benefit obligation - 30,065 25,191 7,617
Plan assets at fair value - 24,231 22,890 7,078
------- ------- ------- -------
Plan assets deficient of
projected benefit obligation - (5,834) (2,301) (539)
Unrecognized net gain - (807) (1,117) (354)
Unrecognized prior service cost - 1,396 (67) 1,411
Unrecognized net obligation - 650 (318) 463
------- ------- ------- -------
(Accrued) prepaid pension cost - (4,595) (3,803) 981
Minimum liability - (2,019) - (1,520)
------- ------- ------- -------
Total pension liability $ - $(6,614) $(3,803) $ (539)
======= ======= ======= =======
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Net pension cost includes the following
components:
Service cost $ 1,436 $ 1,544 $ 1,747
Interest cost on projected benefit
obligation 1,682 2,052 2,218
Actual return on plan assets 313 (4,990) (3,572)
Net amortization (2,367) 2,801 1,215
------- ------- -------
Net periodic pension cost $ 1,064 $ 1,407 $ 1,608
======= ======= =======
</TABLE>
The assumed discount rate in determining the actuarial present value of
the projected benefit obligation is 8.5% in fiscal 1995, 7.25% in fiscal 1996
and 7.75% in fiscal 1997 for all plans. For plans in which benefits are based
on qualifying compensation the assumed rate of increase is 5.0% per annum in
fiscal 1995, 3.5% in fiscal 1996 and 3.5% in fiscal 1997. The expected return
on net assets is 10% per annum for fiscal 1995, 1996 and 1997 for all plans.
37
<PAGE> 39
SPECIALITY EQUIPMENT COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SFAS No. 87 require the Company to record a minimum pension liability
relating to certain unfunded pension obligations, establish an intangible asset
relating thereto and reduce stockholders' equity. As a result, a minimum
pension liability was reduced to $1,520,000, a related intangible asset was
increased to $1,382,000, and deferred pension costs in stockholders' equity
were reduced to $138,000 at January 31, 1997. The decrease in the minimum
pension liability at January 31, 1997 resulted mainly from an increase in the
discount rate and by favorable investment experience during fiscal 1997.
The Company maintains an unfunded supplemental retirement plan for certain
participants in its pension plans to provide benefits in excess of amounts
permitted to be paid from such plans under the provisions of the IRC. At
January 31, 1996 and 1997 the Company had accrued as a liability $1,261,000 and
$1,554,000, respectively, for this plan. In addition, the Company recorded a
minimum liability of $221,000 and a related intangible asset for $221,000 at
January 31, 1997.
In addition to the Company plans, the Company contributed $20,000, $22,000
and $21,000 to a multi- employer union pension plan for fiscal years 1995, 1996
and 1997, respectively.
Postretirement Benefits other than Pensions
The Company offers a postretirement medical benefit plan to retirees at
one of its divisions. The Company continues to fund these benefit costs on a
pay-as-you-go basis, with the retiree paying a portion of the cost. Effective
July 1, 1994, contributions by employees retiring on or after January 1, 1992
were set at 20% of the obligation. This represents a change from a scale of
contribution percentages that ultimately increased to 100%. As a result, a
prior service cost component increased the APBO (as defined below) by $3.0
million. This amount is amortized into expense over the expected average
future service of the plan participants. The total liability as of January 31,
1996 and 1997 is included in accrued liabilities and is as follows:
<TABLE>
<CAPTION>
JANUARY 31,
ACCUMULATED POSTRETIREMENT BENEFIT OBLIGATION ("APBO"): 1996 1997
---- ----
($ in thousands)
<S> <C> <C>
Retirees $ 1,968 $ 2,104
Fully eligible active employees 840 463
Other active employees 5,298 5,786
------- -------
8,106 8,353
Unrecognized net loss (639) (32)
Unrecognized prior service cost (2,712) (2,467)
------- -------
Amount recognized in balance sheet $ 4,755 $ 5,854
======= =======
<CAPTION>
Net periodic postretirement benefit cost included the following
components: ($ in thousands) YEARS ENDED JANUARY 31,
1996 1997
---- ----
<S> <C> <C>
Service costs of benefits earned $ 328 $ 463
Interest cost on accumulated postretirement benefit obligation 486 581
Net amortization 212 246
------- -------
Net periodic postretirement benefit expense $ 1,026 $ 1,290
======= =======
</TABLE>
38
<PAGE> 40
SPECIALITY EQUIPMENT COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
For measuring the postretirement benefit obligation, a 11.0% annual
increase in health care cost trends was assumed for the following fiscal year
declining to 5.50% in future years. The discount rate used was 7.25% in fiscal
1996 and 7.75% in fiscal 1997. If the health care cost assumptions were
increased by 1%, the APBO as of January 31, 1997 would be increased by 18%.
The effect of this change on the sum of the service cost and interest cost
components on net periodic postretirement benefit costs for 1997 would be an
increase of 21%.
12. COMMITMENTS AND CONTINGENT LIABILITIES
The Company is involved in litigation and claims incidental to its
business. The ultimate outcome of these matters cannot presently be determined
because of the uncertainties inherent in litigation. However, such claims are
being vigorously contested and management does not believe that it is probable
that the ultimate outcome of the loss contingencies
relating to such litigation and claims will have, individually or in the
aggregate, a material adverse impact upon the financial condition or future
results of operations of the Company.
The following is a summary of the more significant litigation and claims:
Litigation
The Company is a defendant along with other defendants in an action filed
on July 20, 1995 entitled "Thermodyne Food Service Products, Inc. and AFTEC,
Inc. v. McDonald's Corporation, et al." in the United States District Court,
Northern District of Illinois, Eastern Division. Plaintiffs allege that the
Company and other defendants misappropriated trade secrets in connection with
the Company's development of an oven for McDonald's and OSI. As a result of a
ruling on a motion to dismiss, the only claim remaining against the Company is
the trade secret claim. The defendants' motion for summary judgment on the
trade secret claim was denied and the case is subject to go to trial at any
time. Although the complaint does not specify a dollar amount for claimed
damages, plaintiffs have filed documents with the court seeking up to $90
million in damages. The Company believes it has strong defenses to this claim
and intends to contest it vigorously. In addition, the Company believes that,
were it found liable, it would be entitled to seek contribution from the
co-defendants with respect to any such liability. The Company has not
established a reserve in its financial statements relating to this case.
The Company and certain of its current and former directors are named as
defendants in an action filed by Virginia A. Noerr, who claims to be a
stockholder of the Company's common stock. The action "Noerr v. Greenwood et
al.," C.A. No. 14320, is pending in the Court of Chancery for the State of
Delaware in and for New Castle County, Delaware. Plaintiff purports to bring
this action both as a class action on behalf of all stockholders of record on
April 2, 1993 and derivatively for the benefit of the Company. The amended
complaint alleges that the named individual defendants breached fiduciary
duties of care and loyalty owed to the Company with regard to stock options
granted to the named individual defendants and with regard to the accuracy of
the disclosures in the proxy statement which sought stockholder approval.
Plaintiff also alleges, among other things, that implementation of the
Company's stock option plan constituted self-dealing transactions not entirely
fair to the Company in that the exercise price of the options was so
unreasonably low that the issuance of Common Stock pursuant to the options
constitute waste. The amended complaint seeks, among other things, entry of
judgment against defendants permanently enjoining them from exercising the
stock options; imposing a constructive trust for the benefit of the Company
upon any profits the individual named defendants may have made through exercise
of their options, and monetary damages, costs and expenses. In May 1996
plaintiff filed an amended complaint. The amended complaint, among other
things, corrects certain errors in the original filing and expands the
complaint to include the Company's Executive Long-Term Incentive Plan. The
individual defendants have made demand upon the Company for indemnification.
The Company believes that if the Company were liable to the individual
defendants for indemnification, the uninsured portion of such liability would
not be material to the Company. The Company and the individual defendants
believe that the plaintiff's allegations are without merit and are factually
incorrect and the Company intends to contest these allegations vigorously.
39
<PAGE> 41
SPECIALITY EQUIPMENT COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company was a defendant, along with a number of its current and former
officers and directors, its former lender, General Electric Capital Corporation
("GECC"), and the underwriters with respect to the Company's 1988 offering of
debentures, in a securities class action filed by Melvin C. Nielsen (the
"Nielsen Case") alleging that the Company's prospectus and registration
statement with respect to such debentures contained material misrepresentations
and omissions, and seeking rescission of the sale of all $150 million of
debentures, and other compensatory and exemplary damages, and costs and
expenses. The claim was discharged against the Company pursuant to the
Company's plan of reorganization ("POR") and the Company was subsequently
dismissed from this case. In February of 1993, the Court dismissed plaintiff's
claims under Rule 10b-5 and common law fraud. In October of 1996, the Court
certified a class under Section 11 of the Securities Act and then entered
summary judgment in favor of all defendants as to all pending claims. The
period for appealing this judgment expired on February 22, 1997 and no appeals
were filed.
Environmental
On May 5, 1994, the Company (doing business as Taylor Freezer Company) was
among more than 80 parties notified as potential third-party defendants in an
action involving the clean up of the MIG/Dewane Landfill near Belvidere,
Illinois. A third-party complaint has been filed by the principal owners and
operators of the landfill. Those owners and operators were sued by the
principal users of the landfill who in turn had been sued by the Environmental
Protection Agency ("EPA") in April, 1992. The complaint seeks contribution for
the proposed clean up of the site. The Company has not received settlement
offers from the EPA, but it settled its alleged liability with the private
plaintiffs for $54,000 for the costs associated with the remedial investigation
of the site. The Company has not settled its alleged liability for clean up
costs at the site. Beatrice Company (ConAgra) has assumed defense of the matter
and has agreed to defend and indemnify the Company for claims related to the
MIG/Dewane site to the extent they are related to Taylor and the events giving
rise to the claims occurring during the Beatrice Company (ConAgra) period of
ownership. Based upon presently available information, management does not
believe this matter will have a material effect on the Company's results of
operation or financial condition.
The Company has also received notice of potential environmental actions
from (i) the South Carolina Department of Health and Environmental Control
("SCDHEC") and the EPA with respect to drums of hazardous waste materials
disposed of in South Carolina, (ii) the SCDHEC with respect to the clean up of
the Unisphere Hazardous Waste Site in Spartanburg County, South Carolina, and
(iii) the Nevada Department of Conservation and Natural Resources, Division of
Environmental Protection ("NDEP"), which issued a finding of alleged violation
and order relating to alleged soil and ground water contamination. With
respect to the SCDHEC matter discussed in (i) above, management is unable to
determine the existence or amount of its potential liabilities because no
formal proceedings have been commenced and no notifications have been received
regarding this matter since December, 1992. The Company has reason to believe
that this site will be the subject of no further action by the EPA. With
respect to the SCDHEC matter discussed in (ii) above, management is unable to
determine the existence or amount of its potential liability, if any, because
the use of the site by Beverage-Air occurred prior to the purchase of the
Beverage-Air assets by the Company from Gerlach Industries in November, 1986.
With respect to the NDEP matter discussed in (iii) above, the Company has spent
approximately $313,000 to conduct tests and to implement a remediation program,
but given the pendency of the Company's appeal and its uncertain outcome,
management cannot estimate what, if any, additional expenditures might be
required.
40
<PAGE> 42
SPECIALITY EQUIPMENT COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Letters of Credit
As of January 31, 1997, the Company had letters of credit outstanding totaling
$11.9 million, which guarantee various business activities, including $6.5
million of letters of credit which guarantee the Industrial Project Revenue
Bonds.
13. STOCK OPTION PLAN AND STOCK WARRANT
On May 6, 1993, the stockholders approved long-term incentive plans for
both non-employee directors and employees. Pursuant to the Non-Employee
Directors Long-Term Incentive Plan (the "Director Plan") each non-employee
director was granted an option to purchase 175,241 shares of common stock at a
price of $1.00 per share (which was not less than management's determination of
the fair market value of the underlying shares on the dates of grant). The
aggregate shares under the Director Plan totaled 876,205 shares.
The Executive Long-Term Incentive Plan, as amended, (the "Employee Plan")
allows for the issue of a total of 4,004,814 shares of the Company's common
stock. All of the options granted are at an exercise price which is not less
than management's determination of the fair market value of the underlying
shares at the respective dates of grant.
The options under the Director Plan all vested and became exercisable on
May 6, 1995, as on such date all of the conditions to vesting were satisfied.
All options awarded pursuant to the Director Plan expire on May 6, 2000.
The following sets forth information with respect to options issued and
outstanding:
<TABLE>
<CAPTION>
AVERAGE
OPTION PRICE RANGE OF
SHARES PER SHARE OPTION PRICES
------- ------------ -------------
<S> <C> <C> <C>
Options outstanding at January 31, 1994
(656,250 exercisable) 4,162,269 $ 1.06 $1.00-5.25
Options granted 480,000 8.33 7.75-10.00
Options forfeited (50,000) (1.00) 1.00
Options exercised (20,000) (1.00) 1.00
-------- ------- ----------
Options outstanding at January 31, 1995
(666,250 exercisable) 4,572,269 1.82 1.00-10.00
Options exercised (868,537) (1.00) 1.00
--------- ------- ----------
Options outstanding at January 31, 1996
(3,223,732 exercisable) 3,703,732 2.02 1.00-10.00
Options granted 50,000 12.00 12.00
Options exercised (671,358) (1.08) 1.00-5.25
Options cancelled (86,837) (1.21) 1.00- 5.25
--------- ------- ----------
Options outstanding at January 31, 1997
(2,945,537 exercisable) 2,995,537 $ 2.42 $1.00-12.00
========= ====== ===========
</TABLE>
The options exercisable at January 31, 1997 have an average exercise price
of $2.26 per share and range of exercise prices of $1.00 to $10.00 per share.
The weighted average remaining contractual life of the options currently
outstanding is 3.5 years.
41
<PAGE> 43
A non-employee director has an exercisable stock warrant to purchase
1,129,856 shares of Common Stock at approximately $2.01 per share expiring on
July 31, 1999. The warrant was issued pursuant to the Company's 1992 POR and
subsequently was acquired by the non-employee director.
At January 31, 1997, there were 238,750 additional shares available for
grant under the Employee Plan. The per share weighted-average fair value of
stock options granted during fiscal 1997 was $3.53 on the date of grant using
the Black Scholes option-pricing model with the following weighted-average
assumptions: Expected dividend yield 0%, risk-free interest rate of 6.38%, an
expected life of 4.5 years and a volatility rate of 40.0%. Had compensation
cost for the Company's stock option plans been determined consistent with the
fair value method of SFAS No. 123, Accounting for Stock Based Compensation,
the Company's fiscal 1996 and 1997 results of operations would not have been
materially different from the amounts reported. No option awards were made in
fiscal 1996.
14. RESTRICTED STOCK PROGRAM
In connection with the POR, 905,912 shares were granted to members of
management. All of the shares of restricted stock have vested and all
restrictions have been removed. Unearned compensation was charged to
stockholders' equity at the date of the grant and became fully amortized during
fiscal 1995.
15. QUARTERLY RESULTS (UNAUDITED, $ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The quarterly data has not been audited by the Company's independent
auditors.
<TABLE>
<CAPTION>
FISCAL 1997
-------------------------------------------------
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER
--------- -------- -------- --------
<S> <C> <C> <C> <C>
Net revenue $105,305 $ 105,030 $ 102,775 $ 88,120
Gross margin 32,644 32,606 30,824 26,036
Net earnings 7,077 6,879 4,573 13,809
Net earnings per common share $ .33 $ .32 $ .21 $ .64
Average common shares
outstanding 21,496.7 21,416.9 21,356.4 21,412.3
<CAPTION>
FISCAL 1996
-------------------------------------------------
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER
--------- -------- -------- --------
<S> <C> <C> <C> <C>
Net revenue $106,116 $ 104,831 $ 97,847 $ 83,718
Gross margin 33,545 32,951 30,258 26,993
Net earnings (loss) (5,557) 2,919 3,237 8,094
Net earnings (loss) per common share
Average common shares ($.34) $ .14 $ .15 $ .38
outstanding 16,459.2 21,335.1 21,311.0 21,258.8
</TABLE>
The Company's fiscal 1997 fourth quarter earnings includes year-end
adjustments which increased net earnings by $9.7 million, largely attributable
to the recognition of a $7.2 million benefit related to deferred tax assets.
The Company's fiscal 1996 fourth quarter earnings include a reduction in income
tax expense due to the recognition of a $5.1 million benefit related to
deferred tax assets.
42
<PAGE> 44
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH INDEPENDENT ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
The Company has no items to report under Item 9 of this report.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item 10 as to the Directors of the
Company is incorporated herein by reference to the information set forth under
the caption "Election of Directors" in the Company's definitive Proxy Statement
for the 1997 Annual Meeting of Stockholders, since such Proxy Statement will be
filed with the Securities and Exchange Commission not later than 120 days after
the end of the Company's fiscal year pursuant to Regulation 14A. Information
required by this Item 10 as to the executive officers of the Company is
included in Part I of this Annual Report on Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item 11 is incorporated by reference to
the information set forth under the caption "Executive Compensation" in the
Company's definitive Proxy Statement for the 1997 Annual Meeting of
Stockholders, since such Proxy Statement will be filed with the Securities and
Exchange Commission not later than 120 days after the end of the Company's
fiscal year pursuant to Regulation 14A.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required by this Item 12 is incorporated by reference to the
information set forth under the caption "Voting Securities and Principal
Stockholders" in the Company's definitive Proxy Statement for the 1997 Annual
Meeting of Stockholders, since such Proxy Statement will be filed with the
Securities and Exchange Commission not later than 120 days after the end of the
Company's fiscal year pursuant to Regulation 14A.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this Item 13 is incorporated by reference to the
information set forth under the caption "Certain Transactions" in the Company's
definitive Proxy Statement for the 1997 Annual Meeting of Stockholders, since
such Proxy Statement will be filed with the Securities and Exchange Commission
not later than 120 days after the end of the Company's fiscal year pursuant to
Regulation 14A.
43
<PAGE> 45
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON REPORT 8-K
(a)(1) Financial Statements
The following Financial Statements of the Registrant and its
subsidiaries are included in Part II, Item 8:
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Independent Auditors' Report........................................................................... 23
Consolidated Balance Sheets as of January 31, 1996 and 1997............................................ 24
Statements of Operations for the years ended January 31, 1995, 1996 and 1997........................... 25
Statements of Stockholders' Equity (Deficit) for the years ended January 31, 1995, 1996 and 1997....... 26
Statements of Cash Flows for the years ended January 31, 1995, 1996 and 1997........................... 27
Notes to Consolidated Financial Statements............................................................. 28
(a)(2) Financial Statement Schedules
The following Financial Statement Schedules of the Registrant are included in Item 14 thereof:
Independent Auditors' Report
Schedule II - Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable accounting and regulation 23
of the Securities and Exchange Commission are not required under the related instructions or 46
are inapplicable, and therefore have been omitted.
(a)(3) Exhibits
Reference is made to the Exhibit Index set forth herein.
(b) No reports on Form 8-K were filed during the quarter ended January 31, 1997.
</TABLE>
44
<PAGE> 46
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized on the 27th day of
March, 1997.
SPECIALTY EQUIPMENT COMPANIES, INC.
By: /s/ WILLIAM E. DOTTERWEICH
------------------------------
William E. Dotterweich
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on March 27, 1997:
<TABLE>
<S> <C>
Signature Title
- --------- -----
DANIEL B. GREENWOOD* Chairman of the Board and Director
- --------------------
Daniel B. Greenwood
/s/ WILLIAM E. DOTTERWEICH Chief Executive Officer and Director
- -------------------------- (Principal Executive Officer)
William E. Dotterweich
/s/ DONALD K. MC KAY Executive Vice President, Chief Financial Officer,
- -------------------- Treasurer and Secretary (Principal Accounting and
Donald K. McKay Financial Officer)
- -------------------------- Director
Avram A. Glazer
KEVIN E. GLAZER*
- ---------------- Director
Kevin E. Glazer
MALCOLM I. GLAZER*
- -------------------------- Director
Malcolm I. Glazer
CHARLES E. HUTCHINSON*
- ---------------------- Director
Charles E. Hutchinson
RICHARD A. KENT*
- ---------------- Director
Richard A. Kent
BARRY L. MacLEAN*
- ----------------- Director
Barry L. MacLean
*By /s/ DONALD K. MC KAY
- ------------------------
Donald K. McKay
Attorney in Fact
</TABLE>
45
<PAGE> 47
SCHEDULE II
SPECIALTY EQUIPMENT COMPANIES, INC.
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED JANUARY 31, 1995, 1996 AND 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO
BEGINNING OF COSTS AND BALANCE AT
YEAR EXPENSES DEDUCTIONS END OF YEAR
------------ -------------- ---------- -----------
<S> <C> <C> <C> <C>
Year ended January 31, 1995
Allowance for doubtful accounts $ 7,148 $ 1,173 $ 3,318 $ 5,003
======= ======= ======= =======
Inventory reserves $ 1,315 $ - $ 433 $ 3,708
======= ======= ======= =======
Valuation allowance for deferred tax assets $21,275 $21,275 $ - $21,275
======= ======= ======= =======
Year ended January 31, 1996
Allowance for doubtful accounts $ 5,003 $ 1,694 $ 1,168 $ 5,529
======= ======= ======= =======
Inventory reserves $ 3,708 $ - $ 507 $ 3,201
======= ======= ======= =======
Valuation allowance for deferred tax assets $30,585 $ - $ - $30,585
======= ======= ======= =======
Year ended January 31, 1997
Allowance for doubtful accounts $ 5,529 $ 3 $ 873 $ 4,659
======= ======= ======= =======
Inventory reserves $ 3,201 $ - $ 615 $ 2,586
======= ======= ======= =======
Valuation allowance for deferred tax assets $30,585 $ - $ 8,460 $22,125
======= ======= ======= =======
</TABLE>
46
<PAGE> 48
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NO. DESCRIPTION NUMBERED PAGE
<S> <C> <C>
2.1+ Plan of Reorganization, dated February 5, 1992.
2.2+ Order of the United States Bankruptcy Court for the Northern District of Illinois, Western
Division, entered March 17, 1992, confirming the Company's Plan of Reorganization.
3.1~ Amended and Restated Certificate of Incorporation of the Company.
3.2~ Amended and Restated By-laws of the Company.
4.1* Indenture, dated as of December 1, 1993, by and between the Company and Harris Trust and Savings
Bank, as Trustee, including form of Note.
4.2[] Credit Agreement entered into as of December 1, 1996, among Specialty Equipment Companies, Inc.,
the several financial institutions from time to time party to this Agreement and Bank of America
Illinois, as agent for the Banks.
4.3 First amendment to Credit Agreement, dated as of January 15, 1997, among Specialty Equipment
Companies, Inc., the Banks and Bank of America Illinois, as agent for the Banks. 50
4.4 Second amendment to Credit Agreement, dated as of February 15, 1997, among Specialty Equipment
Companies, Inc., the Banks and Bank of America Illinois, as agent for the Banks. 52
10.1+ Specialty Equipment Companies, Inc. Executive Long-Term Incentive Plan.
10.2* First Amendment to Executive Long-Term Incentive Plan.
10.3- Second Amendment to Specialty Equipment Companies, Inc. Executive Long-Term Incentive Plan,
effective June 6, 1994.
10.4+ Specialty Equipment Companies, Inc. Non-Employees Director Long-Term Incentive Plan.
10.5+ Specialty Equipment Companies, Inc. Restricted Stock Plan.
10.6() Specialty Equipment Companies Retirement Income Plan amended and restated effective January 31,
1987.
10.7++ Fourth Amendment to Retirement Income Plan, executed January 15, 1994.
10.8 Sec. Specialty Equipment Companies, Inc. Supplemental Retirement Plan, executed November 25, 1991.
10.9+ Employment Retention Agreement, dated December 19, 1991, by and between Specialty Equipment
Companies, Inc. and Daniel B. Greenwood.
10.10++ First Amendment to Employee Retention Agreement, dated December 19, 1993, by and between
Specialty Equipment Companies, Inc. and Daniel B. Greenwood.
10.11() Second Amendment to Employee Retention Agreement, dated December 19, 1995, by and between
Specialty Equipment Companies, Inc. and Daniel B. Greenwood.
10.12+ Employment Retention Agreement, dated December 19, 1991, by and between Specialty Equipment
Companies, Inc. and Donald K. McKay.
10.13++ First Amendment to Employee Retention Agreement, dated December 19, 1993, by and between
Specialty Equipment Companies, Inc. and Donald K. McKay.
10.14() Second Amendment to Employee Retention Agreement, dated December 19, 1995, by and between
Specialty Equipment Companies, Inc. and Donald K. McKay.
10.15+ Employment Retention Agreement, dated December 19, 1991, by and between Specialty Equipment
Companies, Inc. and William W. Robertson.
10.16++ First Amendment to Employee Retention Agreement, dated December 19, 1993, by and between
Specialty Equipment Companies, Inc. and William W. Robertson.
10.17() Second Amendment to Employee Retention Agreement, dated December 19, 1995, by and between
Specialty Equipment Companies, Inc. and William W. Robertson.
10.18++ Employment and Termination Agreement, dated December 15, 1993, by and between Specialty Equipment
Companies, Inc. and William E. Dotterweich.
10.19(1) Employment and Termination Agreement, dated February 1, 1995 by and between Specialty Equipment
Companies, Inc. and William E. Dotterweich.
10.20++ Employment Retention Agreement, dated December 19, 1991, by and between Specialty Equipment
Companies, Inc. and Jeffrey P. Rhodenbaugh.
10.21++ First Amendment to Employment Retention Agreement, dated December 19, 1993, by and between
Specialty Equipment Companies, Inc. and Jeffrey P. Rhodenbaugh.
10.22() Second Amendment to Employment Retention Agreement, dated December 19, 1995, by and between
Specialty Equipment Companies, Inc. and Jeffrey P. Rhodenbaugh.
10.23+ Sublease, dated July 28, 1972, by and between Beverage-Air Company and Tannetics, Inc; Assignment
of Sublease, dated March 30, 1973, by and between Buffington Company, as successor to Beverage-
Air Company, and Herman L. Buffington; Amendment to Sublease, dated September 8, 1989, by and
between the Herman L. Buffington Irrevocable Trust and Specialty Equipment Companies, Inc.
</TABLE>
47
<PAGE> 49
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NO. DESCRIPTION NUMBERED PAGE
<S> <C> <C>
10.24(1) Lease, dated December 5, 1994, between Community Cash Stores of Spartanburg, SC and Specialty
Equipment Companies, Inc., Beverage-Air division.
10.25+ Lease, dated May 1, 1992, by and between Wells Enterprises and Wells Manufacturing Company.
10.26(1) Lease, dated March 31, 1995, by and between Dermody Industrial Group and Wells Manufacturing
Company.
10.27+ Lease, dated June 28, 1990, by and between Orlando Corporation and Bloomfield Industries Canada
Limited.
10.28+ Lease, dated July 1, 1993, by and between New York Life Insurance Company and Specialty Equipment
Companies, Inc.
10.29() First Amendment to Lease, dated August 15, 1995, by and between New York Life Insurance Company
and Specialty Equipment Companies, Inc.
10.30+ Sublease, dated January 31, 1993, by and between Arrow Uniform Rental, Inc. and Specialty
Equipment Companies, Inc.
10.31(1) Lease, dated January 3, 1995 by and between Brouillette, Inc. and Taylor Company.
10.32() Lease, dated August 30, 1995, between Lakewood Realty and Mortgage Corporation and Specialty
Equipment Companies, Inc.
10.33(1) Irrevocable Letter of Credit, dated February 22, 1995, in the amount of ()6.5 million issued by
Barclays Bank, PLC, in favor of Amalgamated Bank of Chicago, and Trustee under the Trust
Indenture, dated as of February 22, 1995 between the State of South Carolina and Amalgamated Bank
of Chicago.
10.34(1) Pledge Agreement, dated as of February 1, 1995, among Specialty Equipment Companies, Inc.,
Shawmut Capital Corporation as guarantor, and Barclays Bank PLC, New York Branch, covering ()6.4
million State of South Carolina Industrial Project Revenue Bonds, Series 1995 (Specialty
Equipment Companies, Inc. Project).
10.35 First Amendment to Pledge Agreement, dated as of February 15, 1997, among Specialty Equipment
Companies, Inc., Barclays Bank PLC, on behalf of itself and as agent for Shawmut Capital Corp.,
Bank of America Illinois and Amalgamated Bank of Chicago. 57
10.36 Warrant to purchase Common Stock of the Company, originally issued March 31, 1992, reregistered
December 27, 1996 to the Malcolm I. Glazer Family Limited Partnership. 59
10.37+ Form of Indemnification Agreement for the directors and certain officers of the Company.
12.1 Statement Re: Computation of Ratios of Earnings to Fixed Charges 101
21.1 Subsidiaries of Specialty Equipment Companies, Inc. 102
23.1 Consent of KPMG Peat Marwick LLP. 103
24.1 Powers of Attorney of Messrs. K. Glazer, Greenwood, Kent and Hutchinson dated
March 19, 1997, of Mr. MacLean dated March 20, 1997, and of Mr. M. Glazer dated March 21, 1997. 104
27.1 Financial data schedule. 110
</TABLE>
+ Incorporated herein by reference to the applicable exhibit to the
Company's Registration Statement on Form S-1, as amended, initially
filed with the Securities and Exchange Commission on September 3, 1993
(Registration No. 33-68404).
* Incorporated herein by reference to the applicable exhibit to the
Company's Quarterly Report on Form 10-Q for the quarter ended
October 31, 1993, as filed with the Securities and Exchange Commission
on December 15, 1993.
++ Incorporated herein by reference to the applicable exhibit to the
Company's Annual Report on Form 10-K for the year ended January 31, 1994,
as filed with the Securities and Exchange Commission on March 25, 1994.
~ Incorporated herein by reference to the applicable exhibit to the
Company's Form 8-K, as filed with the Securities and Exchange Commission
on May 12, 1994.
- Incorporated herein by reference to the applicable exhibit to the
Company's Quarterly Report on Form 10-Q for the quarter ended
April 30, 1994, as filed with the Securities and Exchange Commission on
June 14, 1994.
(1) Incorporated herein by reference to the applicable exhibit to the Company's
Annual Report on Form 10-K for the year ended January 31, 1995, as filed
with the Securities and Exchange Commission on March 28, 1995.
() Incorporated herein by reference to the applicable exhibit to the Company's
Annual Report on Form 10-K for the year ended January 31, 1996, as filed
with the Securities and Exchange Commission on March 26, 1996.
Sec. Incorporated herein by reference to the applicable exhibit to the
Company's Quarterly Report on Form 10-Q for the quarter ended
April 30, 1996, as filed with the Securities and Exchange Commission on
June 13, 1996.
[ ] Incorporated herein by reference to the applicable exhibit to the Company's
Quarterly Report on Form 10-Q for the quarter ended October 31, 1996, as
filed with the Securities and Exchange Commission on December 15, 1996.
48
<PAGE> 1
EXHIBIT 4.3
FIRST AMENDMENT TO CREDIT AGREEMENT
THIS FIRST AMENDMENT TO CREDIT AGREEMENT, dated as of January 15, 1997
(the "Amendment"), is entered into among SPECIALTY EQUIPMENT COMPANIES, INC., a
Delaware corporation (the "Company"), the "Banks" (as defined herein) and BANK
OF AMERICA ILLINOIS, as agent for the Banks (in such capacity, the "Agent").
R E C I T A L S:
A. The Company, the banks named therein (the "Banks") and the
Agent entered into that certain Credit Agreement, dated as of December 1, 1996
(the "Credit Agreement").
B. The Company has requested that the Agent and the Banks enter
into this Amendment in order to temporarily increase the "L/C Facility
Commitment" (as defined in the Credit Agreement) and to amend certain other
provisions of the Credit Agreement.
C. Capitalized terms used herein and not otherwise defined shall
have the meanings provided for in the Credit Agreement.
1. AMENDMENT
1.1 Subsection 2.7(a) of the Credit Agreement is hereby amended by
deleting the first sentence thereof and substituting the following in its
stead:
"Subject to the terms and conditions and relying upon the
representations and warranties herein set forth, the Issuing Bank
agrees, at any time and from time to time on or after the Closing Date
until the Termination Date, to issue and deliver or to extend the
expiry of Letters of Credit for the account of the Company in an
aggregate undrawn amount at any time outstanding which does not exceed
(i) $19,000,000 during the period from January 15, 1997 through and
including April 14, 1997, and (ii) $15,000,000 at all other times (the
"L/C Facility Commitment"); provided, however, that the Issuing Bank
shall not issue or extend the expiry of any Letter of Credit if,
immediately after giving effect to such issuance or extension, the
aggregate outstanding principal balance of the Revolving Loans and the
L/C Exposure would exceed the aggregate Commitments."
1.2 Subsection 2.10(b) of the Loan Agreement is hereby deleted and
the following is inserted in its stead:
"(b) UNUSED LOAN FEE. If during any calendar quarter
prior to the Termination Date (or portion of the
calendar quarter for 1996 and the calendar quarter in
which the Termination Date occurs), the average daily
balance of the Revolving Loan is less than
$45,000,000, the Company shall pay to Agent, for the
ratable benefit of the Banks, in addition to any
interest, late charges or liquidated damages due
under this Agreement, an amount ("Unused Loan Fee")
equal to the quotient of an amount equal to the
positive difference between $45,000,000 and the
average daily balance of the Revolving Loan during
such calendar quarter (or portion of the calendar
quarter for 1996 and the calendar quarter in which
the Termination Date occurs), multiplied by a rate
equal to 0.15%, divided by four. The amount of any
Unused Revolving Loan Fee shall be payable within
five days after determination thereof by Agent and
notice to the Company of the amount thereof."
2. MISCELLANEOUS
2.1 LIMITED NATURE OF AMENDMENTS. The parties hereto acknowledge
and agree that the terms and provisions of this Amendment amend, add to and
constitute a part of the Credit Agreement. Except as expressly modified and
amended by the terms of this Amendment, all of the other terms and conditions
of the Credit Agreement and all documents executed in connection therewith or
referred to or incorporated therein remain in full force and effect and are
hereby ratified, reaffirmed, confirmed and approved.
1
<PAGE> 2
2.2 CONFLICT. If there is an express conflict between the terms
of this Amendment and the terms of the Credit Agreement, or any of the other
agreements or documents executed in connection therewith or referred to or
incorporated therein, the terms of this Amendment shall govern and control.
2.3 COUNTERPARTS. This Amendment may be executed in one or more
counterparts, each of which shall be deemed to be an original.
2.4 REPRESENTATIONS AND WARRANTIES. The Company represents and
warrants to the Agent and the Banks as follows: (A) the Company has all
necessary power and authority to execute and deliver this Amendment and perform
its obligations hereunder; (B) this Amendment and the Credit Agreement, as
amended hereby, constitute the legal, valid and binding obligations of the
Company and are enforceable against the Company in accordance with their terms;
and (C) all representations and warranties of the Company contained in the
Credit Agreement and all other agreements, instruments and other writings
relating thereto are true and complete as of the date hereof.
2.5 GOVERNING LAW. This Amendment shall be construed in
accordance with and governed by and the internal laws of the State of Illinois,
without giving effect to choice of law principles.
IN WITNESS WHEREOF, the Company, the Agent and the Banks have caused
this Amendment to be duly executed by their respective authorized officers as
of the day and year first above written.
SPECIALTY EQUIPMENT COMPANIES, INC.
By:
Name:
Title:
BANK OF AMERICA ILLINOIS, as Agent
By:
Name:
Title:
BANK OF AMERICA ILLINOIS, as a Bank
By:
Name:
Title:
HARRIS TRUST AND SAVINGS BANK, as a Bank
By:
Name:
Title:
THE FIRST NATIONAL BANK OF CHICAGO, as a Bank
By:
Name:
Title:
2
<PAGE> 1
EXHIBIT 4.4
SECOND AMENDMENT TO CREDIT AGREEMENT
THIS SECOND AMENDMENT TO CREDIT AGREEMENT, dated as of February 13,
1997 (the "Amendment"), is entered into among SPECIALTY EQUIPMENT COMPANIES,
INC., a Delaware corporation (the "Company"), the "Banks" (as defined herein)
and BANK OF AMERICA ILLINOIS, as agent for the Banks (in such capacity, the
"Agent").
R E C I T A L S:
A. The Company, the banks named therein (the "Banks") and the
Agent entered into that certain Credit Agreement, dated as of December 1, 1996,
as amended by a First Amendment to Credit Agreement, dated as of January 15,
1997 (the "Credit Agreement").
B. The Company has requested that the Agent and the Banks enter
into this Amendment in order to provide for the issuance of bankers acceptances
and to amend certain other provisions of the Credit Agreement.
C. Capitalized terms used herein and not otherwise defined shall
have the meanings provided for in the Credit Agreement.
1. AMENDMENT
1.1 Section 1.1 of the Credit Agreement is hereby amended by
adding the following definition of Bankers Acceptances to Section 1.1 of the
Credit Agreement in the appropriate alphabetical sequence:
""BANKERS ACCEPTANCES" means bankers acceptances issued by the
Issuing Bank upon acceptance by the Issuing Bank of time
drafts presented pursuant to Letters of Credit."
1.2 Section 1.1 of the Credit Agreement is hereby amended by
deleting the definition of LC Disbursement contained therein and inserting the
following in its stead:
""LC DISBURSEMENT" shall mean any payment or disbursement made
by the Issuing Bank under or pursuant to a Letter of Credit or
a Bankers Acceptance."
1.3 Section 1.1 of the Credit Agreement is hereby amended by
deleting the definition of LC Exposure contained therein and inserting the
following in its stead:
""LC EXPOSURE" shall mean, without duplication, at any time,
the sum of (a) the aggregate undrawn amount of all Letters of
Credit outstanding at such time, plus (b) the aggregate unpaid
amount of all Bankers Acceptances outstanding at such time,
plus (c) the aggregate amount which has been drawn under
Letters of Credit or paid under Bankers Acceptances but for
which the Issuing Bank or the Banks, as the case may be, have
not been reimbursed by the Company at such time."
1.4 Section 2.7 of the Credit Agreement is hereby deleted and the
following is inserted in its stead:
"2.7 LETTERS OF CREDIT AND BANKERS ACCEPTANCES.
"(a) Subject to the terms and conditions and
relying upon the representations and warranties herein set
forth, the Issuing Bank agrees, at any time and from time to
time on or after the Closing Date until the Termination Date,
to issue and deliver or to extend the expiry of Letters of
Credit and/or Bankers Acceptances for the account of the
Company in an aggregate undrawn amount at any one time
outstanding which does not exceed (i) $19,000,000 during the
period from January 15, 1997 through and including April 14,
1997, and (ii) $15,000,000 at all other times (the "L/C
Facility Commitment"); provided, however, that the Issuing
Bank shall not issue or extend the expiry of any Letter of
Credit or Bankers Acceptance if, immediately after giving
effect to such issuance or extension the aggregate outstanding
principal balance of the Revolving Loans and the LC Exposure
would exceed the aggregate Commitments. Each Letter of Credit
(x) shall be in a form approved in writing by the Company, the
Agent and the Issuing Bank, (y) shall be in a minimum
principal amount of $5,000 and (z) shall permit drawings upon
the presentation of one or more sight drafts, or one or more
time drafts for a period not to exceed six months, and such
other documents as shall be specified by the Company in the
applicable notice and Application delivered pursuant to
subsection 2.7(c) below.
"(b) Each Letter of Credit shall by its terms
expire not later than the earlier of (i) the first anniversary
of the date of issuance or extension (subject to extension for
additional one-year periods by the Issuing Bank as
contemplated by paragraph (a) above) and (ii) the Termination
Date. Each Bankers Acceptance shall have a term of six months
or less. Each Letter of Credit and each Bankers Acceptance
shall by its terms provide for payment of drawings in dollars.
1
<PAGE> 2
"(c) The Company shall give the Issuing Bank
written or telecopy notice not later than 10:00 a.m., Chicago
time, two Business Days (or such shorter period as shall be
acceptable to the Issuing Bank and the Agent) prior to any
proposed issuance of a Letter of Credit. Each such notice
shall refer to this Agreement and shall specify (i) the date
on which such Letter of Credit is to be issued (which shall be
a Business Day), the face amount of such Letter of Credit
(which shall be an amount in dollars), (ii) the name and
address of the beneficiary, (iii) whether such Letter of
Credit shall permit a single drawing or multiple drawings,
(iv) the form of the sight draft or time draft, as the case
may be, and any other documents required to be presented at
the time of any drawing (together with the exact wording of
such documents or copies thereof) and (v) the expiry date of
such Letter of Credit (which shall conform to the provisions
of paragraph (b) above). At the time of each request by the
Company that a Letter of Credit be issued, the Issuing Bank,
at its option, may require the Company to execute and deliver
to the Issuing Bank an application for such Letter of Credit
in the form customarily prescribed by the Issuing Bank to
issue Letters of Credit (the "Applications"). This Agreement
supersedes any terms of the Applications which are
inconsistent with the terms hereof. The Issuing Bank shall
give the Agent, which shall in turn give to each Bank, prompt
written or telecopy advice of any notice received from the
Company pursuant to this subsection.
"(d) By the issuance of a Letter of Credit or
Bankers Acceptance and without any further action on the part
of the Issuing Bank or the Banks in respect thereof, the
Issuing Bank hereby grants to each Bank, and each Bank hereby
agrees to and does acquire from the Issuing Bank, a
participation in such Letter of Credit or Bankers Acceptance
equal to such Bank's pro rata share, of the face amount of
such Letter of Credit or Bankers Acceptance, effective upon
the issuance of such Letter of Credit or Bankers Acceptance;
provided, however, that no Bank shall be required to acquire
participations in Letters of Credit or Bankers Acceptances
that would result in its Pro Rata Share, based upon its
Commitment, of the LC Exposure exceeding its Commitment. In
consideration and in furtherance of the foregoing, each Bank
hereby absolutely and unconditionally agrees to pay to the
Agent, on behalf of the Issuing Bank, in accordance with
subsection (f) below, such Bank's Pro Rata Share, of each
unreimbursed LC Disbursement made by the Issuing Bank;
provided, however, that the Banks shall not be obligated to
make any such payment with respect to any wrongful payment or
disbursement made under any Letter of Credit as a result of
the failure in any material respect of the Issuing Bank or any
confirming bank to comply with the obligations imposed on it
with respect to such Letter of Credit by the Uniform Customs
and Practice for Documentary Credits (1993 Revision),
International Chamber of Commerce, Publication No. 500 and
subsequent revisions (the "Uniform Customs") or applicable
law.
"(e) Each Bank acknowledges and agrees that its
acquisition of participations pursuant to subsection (d) above
in respect of Letters of Credit and Bankers Acceptances is
absolute and unconditional and shall not be affected by any
circumstance whatsoever, including the occurrence and
continuance of any Default or Event of Default hereunder, and
that each such payment shall be made without any offset,
abatement, withholding or reduction whatsoever.
"(f) Promptly after it shall have ascertained that
any draft and any accompanying documents presented under a
Letter of Credit or Bankers Acceptance appear to be in
conformity with the terms and conditions of such Letter of
Credit or Bankers Acceptance, the Issuing Bank shall give
written or telecopy notice to the Company and the Agent of the
receipt and amount of such draft and the date on which payment
thereon will be made. If the Agent shall not have received
from the Company the payment required pursuant to subsection
(g) below by 12:00 noon, Chicago time, one Business Day after
the date on which payment of a draft presented under any
Letter of Credit or Bankers Acceptance has been made, the
Agent shall promptly so notify the Issuing Bank and each Bank,
specifying in the notice to each Bank such Bank's Pro Rata
Share of such LC Disbursement. Each Bank shall pay to the
Agent, not later than 2:00 p.m., Chicago time, on such date,
such Bank's percentage of such LC Disbursement, which the
Agent shall promptly pay to the Issuing Bank. The Agent will
promptly remit to each Bank such Bank's percentage of any
amounts subsequently received by the Agent from the Company in
respect of such LC Disbursement; provided that (i) amounts so
received for the account of any Bank prior to payment by such
Bank of amounts required to be paid by it hereunder in respect
of any LC Disbursement and (ii) amounts representing interest
on any LC Disbursement for the period prior to the payment by
such Bank of such amounts shall in each case be remitted to
the Issuing Bank.
"(g) If the Issuing Bank shall pay any draft
presented under a Letter of Credit or Bankers Acceptance under
circumstances entitling it to reimbursement under succeeding
provisions of this subsection (g), the Company shall pay to
the Issuing Bank or to the Agent for the account of the
Issuing Bank or, if the Agent shall have received the payments
provided in subsection (f) above with respect to such drawing,
for the accounts of the Banks, an amount equal to the amount
of such draft before 12:00 noon, Chicago time, on the Business
Day immediately following the date of payment of such draft,
together with interest on such amount at a rate per annum
equal to the interest rate in effect for Reference Rate Loans
from (and including) the date of payment of such draft to (but
excluding) the date of such payment by the Company. The
obligation of the Company to pay the amounts referred to above
2
<PAGE> 3
in this subsection (g) shall be absolute, unconditional and
irrevocable and shall be satisfied strictly in accordance with
their terms irrespective of:
"(i) any lack of validity or
enforceability of any Letter of Credit or Bankers
Acceptance;
"(ii) the existence of any claim, setoff,
defense or other right which the Company or any other
Person may at any time have against the beneficiary
under any Letter of Credit, the Agent, the Issuing
Bank, any confirming bank or any Bank (other than the
defense of payment in accordance with the terms of
this Agreement or a defense based on the failure in
any material respect of the Issuing Bank or
confirming bank to comply with the obligations
imposed on it with respect to such Letter of Credit
by the Uniform Customs or applicable law) or any
other Person in connection with this Agreement or any
other transaction;
"(iii) any draft or other document
presented under a Letter of Credit proving to be
forged, fraudulent or invalid in any respect or any
statement therein being untrue or inaccurate in any
respect; provided that payment by the Issuing Bank or
confirming bank under such Letter of Credit against
presentation of such draft or document shall not have
constituted a failure in any material respect by the
Issuing Bank or confirming bank to comply with the
obligations imposed on it with respect to such Letter
of Credit by the Uniform Customs or applicable law.
"(iv) payment by the Issuing Bank under a
Letter of Credit against presentation of a draft or
other document which does not comply in any
immaterial respect with the terms of such Letter of
Credit; provided that such payment shall not have
constituted gross negligence or wilful misconduct; or
"(v) any other circumstance or event
whatsoever, whether or not similar to any of the
foregoing; provided that such other circumstance or
event shall not have been the result of gross
negligence or wilful misconduct of the Issuing Bank.
"It is understood that in making any payment under a
Letter of Credit (x) the Issuing Bank's exclusive reliance on
the documents presented to it under such Letter of Credit as
to any and all matters set forth therein, including, without
limitation, reliance on the amount of any draft presented
under such Letter of Credit, whether or not the amount due to
the beneficiary equals the amount of such draft and whether or
not any document presented pursuant to such Letter of Credit
proves to be forged, fraudulent or invalid in any respect, if
such document on its face appears to be in order, and whether
or not any other statement or any other document presented
pursuant to such Letter of Credit proves to be forged or
invalid or any statement therein proves to be inaccurate or
untrue in any respect whatsoever, and (y) any noncompliance in
any immaterial respect of the documents presented under a
Letter of Credit with the terms thereof shall, in either case,
not be deemed a failure in any material respect by the Issuing
Bank or confirming bank to comply with the obligations imposed
on it with respect to such Letter of Credit by the Uniform
Customs or applicable law.
"(h) Neither the Issuing Bank nor its
correspondents or agents, or any bank(s) or financial
institution(s) used by the Issuing Bank in connection with the
issuance of Letters of Credit ("Correspondent"), shall be
responsible for (i) the use which may be made of the Letters
of Credit or Bankers Acceptances or for any acts or omissions
of the user(s) of the Letters of Credit or Bankers
Acceptances; (ii) the existence, character, quality, quantity,
condition, packing or value of the property purporting to be
represented by the documents required by the terms of any
Letters of Credit or Bankers Acceptances or presented in
connection therewith ("Documents"); (iii) the time, place,
manner or order in which shipment is made; (iv) except as
otherwise provided in subsection 2.7(g)(iii), the validity,
sufficiency, or genuineness of Documents, or of any
endorsements thereon, even if such Documents should in fact
prove to be in any or all respects invalid, insufficient,
fraudulent, or forged; (v) partial or incomplete shipment, or
failure or omission to ship any or all of the property
referred to in the Letters of Credit, Bankers Acceptances or
the Documents; (vi) the character, adequacy, validity or
genuineness of any insurance or solvency or responsibility of
any insurer or any other risk connected with insurance; (vii)
any deviation from instructions, delay, default or fraud by
the shipper or anyone else in connection with the property
referred to in the Letters of Credit, Bankers Acceptances or
the Documents or the shipping thereof; (viii) the insolvency,
responsibility or relationship to the property of any party
issuing any documents in connection with the property referred
to in the Letters of Credit; (ix) delay in arrival or failure
to arrive of either the property referred to in the Letters of
Credit or the Documents; (x) delay
3
<PAGE> 4
in giving or failure to give notice of arrival or any other
notice; (xi) any breach of contract between the shipper(s) or
vendor(s) and the consignee(s) or buyer(s); (xii) failure of
any instrument to bear any reference or adequate reference to
the Letter of Credit or Bankers Acceptances or failure of
Documents to accompany any instrument at negotiation, or
failure of any person to note the amount of any instrument on
the reverse of the Letter of Credit or Bankers Acceptances or
to send forward Documents apart from instruments as required
by the terms of the Letter of Credit or Bankers Acceptances or
to send forward Documents apart from instruments as required
by the terms of the Letter of Credit or Bankers Acceptances,
each of which provisions, if contained in the Letter of Credit
or itself, it is agreed may be waived by the Issuing Bank or
Correspondent; or (xiii) errors, omissions, interruptions or
delays in transmission or delivery of any messages by mail,
cable, telegraph, wireless or otherwise, whether or not they
may be in cipher. Further, the Issuing Bank shall not be
responsible for any act, error, neglect or default, omission,
insolvency or failure in business of any of its
Correspondents. The occurrence of any one or more of the
contingencies referred to in the preceding sentences of this
subsection 2.7(h) shall not affect, impair or prevent the
vesting of any of the Issuing Bank's rights or powers
hereunder or the Company's obligation to make reimbursement.
The Company shall promptly examine (i) the copy of the Letter
of Credit or Bankers Acceptance (and of any amendments
thereof) sent to it by the Issuing Bank or Correspondent and
(ii) all documents and instruments delivered to it from time
to time by the Issuing Bank or Correspondent, and, in the
event of any claim of noncompliance with the Company's
instructions or other irregularity, will promptly notify the
Issuing Bank and Correspondent thereof in writing, the Company
being conclusively deemed to have waived any such claim
against the Issuing Bank and Correspondent unless such notice
is given within two Business Days following receipt by the
Company of such Letter of Credit, amendment, document or
instrument.
"(i) Upon any transfer, sale, delivery, surrender
or endorsement of any bill of lading, warehouse receipt or
other Document at any time(s) held by the Issuing Bank, or
held for its account by any of its correspondents or agents,
or any bank or financial institution used by the Issuing Bank
in connection with the issuance of Letters of Credit or
Bankers Acceptances, relative to the Letter of Credit or
Bankers Acceptance, the Company will indemnify and hold the
Issuing Bank and any such correspondent(s), agent(s), bank(s)
and financial institution(s), harmless from and against each
and every claim, demand, action or suit which may arise
against the Issuing Bank or any correspondent(s), agent(s),
bank(s) and financial institution(s), by reason thereof."
2. MISCELLANEOUS
2.1 LIMITED NATURE OF AMENDMENTS. The parties hereto acknowledge
and agree that the terms and provisions of this Amendment amend, add to and
constitute a part of the Credit Agreement. Except as expressly modified and
amended by the terms of this Amendment, all of the other terms and conditions
of the Credit Agreement and all documents executed in connection therewith or
referred to or incorporated therein remain in full force and effect and are
hereby ratified, reaffirmed, confirmed and approved.
2.2 CONFLICT. If there is an express conflict between the terms
of this Amendment and the terms of the Credit Agreement, or any of the other
agreements or documents executed in connection therewith or referred to or
incorporated therein, the terms of this Amendment shall govern and control.
2.3 COUNTERPARTS. This Amendment may be executed in one or more
counterparts, each of which shall be deemed to be an original.
2.4 REPRESENTATIONS AND WARRANTIES. The Company represents and
warrants to the Agent and the Banks as follows: (A) the Company has all
necessary power and authority to execute and deliver this Amendment and perform
its obligations hereunder; (B) this Amendment and the Credit Agreement, as
amended hereby, constitute the legal, valid and binding obligations of the
Company and are enforceable against the Company in accordance with their terms;
and (C) all representations and warranties of the Company contained in the
Credit Agreement and all other agreements, instruments and other writings
relating thereto are true and complete as of the date hereof.
2.5 GOVERNING LAW. This Amendment shall be construed in
accordance with and governed by and the internal laws of the State of Illinois,
without giving effect to choice of law principles.
IN WITNESS WHEREOF, the Company, the Agent and the Banks have caused
this Amendment to be duly executed by their respective authorized officers as
of the day and year first above written.
4
<PAGE> 5
SPECIALTY EQUIPMENT COMPANIES, INC.
By:
Name:
Title:
BANK OF AMERICA ILLINOIS, as Agent
By:
Name:
Title:
BANK OF AMERICA ILLINOIS, as a Bank
By:
Name:
Title:
HARRIS TRUST AND SAVINGS BANK, as a Bank
By:
Name:
Title:
THE FIRST NATIONAL BANK OF CHICAGO, as a Bank
By:
Name:
Title:
5
<PAGE> 1
EXHIBIT 10.35
FIRST AMENDMENT TO PLEDGE AGREEMENT
THIS FIRST AMENDMENT TO PLEDGE AGREEMENT, dated as of February 15,
1997 ("Amendment"), among SPECIALTY EQUIPMENT COMPANIES, INC. (the "Pledgor"),
BARCLAYS BANK PLC, NEW YORK BRANCH, on behalf of itself and as agent for
SHAWMUT CAPITAL CORPORATION ("Barclays"), BANK OF AMERICA ILLINOIS ("BAI"), and
AMALGAMATED BANK OF CHICAGO, as Trustee (as defined in the Pledge Agreement
referred to below).
1. RECITALS
1.1 The Pledgor, Barclays and the Trustee entered into a Pledge
Agreement, dated as of February 1, 1995 (the "Pledge Agreement").
1.2 The Pledgor, Barclays, the Trustee and BAI desire to amend the
Pledge Agreement as provided herein to reflect that the letter of credit issued
by Barclays referred to in the Pledge Agreement has been replaced by a letter
of credit issued by BAI.
2. DEFINITIONS
Capitalized terms used herein and not otherwise defined herein shall
have the meanings ascribed to them in the Pledge Agreement.
3. AMENDMENT
3.1. The Pledge Agreement is hereby amended by causing all
references therein to the Bank to mean BAI and all references therein to the
Bank shall not mean or include Barclays from and after the date hereof.
3.2. Section 21 of the Pledge Agreement is hereby deleted and the
following is inserted in its stead:
"SECTION 21. GOVERNING LAW; TERMS. This Agreement shall be
governed by and construed in accordance with the laws of the State of
Illinois. Unless otherwise defined herein or in the Reimbursement
Agreement, terms defined in Article 9 of the Uniform Commercial Code
in effect from time to time in the State of Illinois are used herein
as therein defined."
4. MISCELLANEOUS
4.1. LIMITED NATURE OF AMENDMENTS. The parties hereto acknowledge
and agree that the terms and provisions of this Amendment amend, add to and
constitute a part of the Pledge Agreement. Except as expressly modified and
amended by the terms of this Amendment, all of the other terms and conditions
of the Pledge Agreement and all documents executed in connection therewith or
referred to or incorporated therein remain in full force and effect and are
hereby ratified, reaffirmed, confirmed and approved.
4.2. COUNTERPARTS. This Amendment may be executed in one or more
counterparts, each of which shall be deemed to be an original.
4.3. REPRESENTATIONS AND WARRANTIES. The Pledgor represents and
warrants to Lender as follows: (A) the Pledgor has all necessary power and
authority to execute and deliver this Amendment and perform its obligations
hereunder; (B) this Amendment and the Pledge Agreement, as amended hereby,
constitute the legal, valid and binding obligations of the Pledgor and are
enforceable against the Pledgor in accordance with their terms; and (C) all
representations and warranties of the Pledgor contained in the Pledge Agreement
are true and complete as of the date hereof.
4.4. GOVERNING LAW. This Amendment shall be governed by and
construed in accordance with the laws of the State of Illinois.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
day and year set forth above.
1
<PAGE> 2
SPECIALTY EQUIPMENT COMPANIES, INC.
By:
Title:
BARCLAYS BANK PLC, NEW YORK BRANCH
By:
Title:
BANK OF AMERICA ILLINOIS
By:
Title:
AMALGAMATED BANK OF CHICAGO, as Trustee
By:
Title:
AMALGAMATED BANK OF CHICAGO, as Agent
under the Pledge Agreement
By:
Title:
2
<PAGE> 1
EXHIBIT 10.36
THIS WARRANT AND THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES OR BLUE SKY
LAWS OF ANY STATE AND MAY NOT BE TRANSFERRED IN VIOLATION OF SUCH ACT AND LAWS,
THE RULES AND REGULATIONS THEREUNDER OR THE PROVISIONS OF THIS WARRANT.
WARRANT
To Purchase Common Stock of
SPECIALTY EQUIPMENT COMPANIES, INC.
Issuance Date: March 31, 1992
Reregistered on December 27, 1996
Issued to: MALCOLM I. GLAZER, FAMILY LIMITED PARTNERSHIP
No. of Shares of Common Stock: 866,852
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
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1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. EXERCISE OF WARRANT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.1 Manner of Exercise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.2 Payment of Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.3 Fractional Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.4 Continued Validity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3. TRANSFER, DIVISION AND COMBINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.1 Transfer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.2 Division and Combination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.3 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.4 Maintenance of Books . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
4. ADJUSTMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
4.1 Stock Dividends, Subdivisions and Combinations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
4.2 Certain Other Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
4.3 Issuance of Additional Shares of Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.4 Issuance of Warrants or Other Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
4.5 Issuance of Convertible Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.6 Superseding Adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.7 Other Provisions Applicable to Adjustments under this Section . . . . . . . . . . . . . . . . . . . . 14
4.8 Reorganization, Reclassification, Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
4.9 Other Action Affecting Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5. NOTICES TO WARRANT HOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
5.1 Notice of Adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
5.2 Notice of Certain Corporate Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
6. NO IMPAIRMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
7. RESERVATION AND AUTHORIZATION OF COMMON STOCK; REGISTRATION WITH OR APPROVAL OF ANY GOVERNMENTAL AUTHORITY . . 20
8. RESTRICTIONS ON TRANSFERABILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
8.1 Restrictive Legend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
8.2 Notice of Proposed Transfers; Requests for Registration . . . . . . . . . . . . . . . . . . . . . . . 21
8.3 Required Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
8.4 Incidental Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
8.5 Registration Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
8.6 Expenses; Limitations on Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
8.7 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
8.8 Termination of Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
8.9 Listing on Securities Exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
8.10 Certain Limitations on Registration Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
</TABLE>
-i-
<PAGE> 3
TABLE OF CONTENTS (Cont'd)
<TABLE>
<CAPTION>
Page
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<S> <C> <C>
8.11 Selection of Managing Underwriters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
9. SUPPLYING INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
10. LOSS OR MUTILATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
11. WARRANT AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
12. OFFICE OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
13. FINANCIAL AND BUSINESS INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
13.1 Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
13.2 Annual Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
13.3 Filings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
14. APPRAISAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
15. LIMITATION OF LIABILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
16. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
16.1 Nonwaiver and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
16.2 Notice Generally . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
16.3 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
16.4 Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
16.5 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
16.6 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
16.7 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
16.8 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
16.9 Governing Law; Waiver of Jury Trial; Venue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
</TABLE>
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<PAGE> 4
THIS WARRANT AND THE SECURITIES REPRESENTED HEREBY HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE
TRANSFERRED IN VIOLATION OF SUCH ACT OR STATE LAW, THE RULES AND REGULATIONS
THEREUNDER OR THE PROVISIONS OF THIS WARRANT.
No. of Shares of Common Stock: 866,852 Malcolm I. Glazer,
Family Limited
Partnership
WARRANT
To Purchase Common Stock of
SPECIALTY EQUIPMENT COMPANIES, INC.
THIS IS TO CERTIFY THAT Malcolm I. Glazer Family Limited
Partnership or registered assigns, is entitled, at any time, or from time to
time, prior to the Expiration Date (as hereinafter defined), to purchase from
Specialty Equipment Companies, Inc. (the "Company"), up to 866,852 shares of
Common Stock (as hereinafter defined and subject to adjustment as provided
herein), in whole or in part, including fractional parts, at an aggregate
purchase price of $2,000,000.00, all on the terms and conditions and pursuant
to the provisions hereinafter set forth.
1. DEFINITIONS
As used in this Warrant, the following terms have the
respective meanings set forth below:
"Additional Shares of Common Stock" shall mean all shares of
Common Stock issued by the Company after the date hereof, other than Warrant
Stock.
"Appraised Value" shall mean, in respect of any share of
Common Stock on any date herein specified, the fair market value of such share
of Common Stock (determined without giving effect to the discount for (i) a
minority interest, or (ii) any lack of liquidity of the Common Stock or to the
fact that the Company may have no class of equity registered under the Exchange
Act) as of the last day of the most recent fiscal month to end within 60 days
prior to such date specified, based on the shares fully diluted pro rata
portion of the value of the Company as a whole, as determined by an investment
banking firm selected in accordance with the terms of Section 14 on the basis
of a sale between a willing seller and buyer, neither acting under any
compulsion, divided by the number of Fully Diluted Outstanding shares of Common
Stock.
"Book Value" shall mean, in respect of any share of Common
Stock on any date herein specified, the consolidated book
<PAGE> 5
value of the Company (assuming payment of the exercise price of all outstanding
options, warrants and convertible securities) applicable to Common Stock as of
the last day of the month immediately preceding such date, divided by the
number of Fully Diluted Outstanding shares of Common Stock as determined in
accordance with GAAP by a firm of independent certified public accountants of
recognized national standing selected by the Company and reasonably acceptable
to the Majority Holders.
"Business Day" shall mean any day that is not a Saturday or
Sunday or a day on which banks are required or permitted to be closed in the
State of New York or the State of Illinois.
"Commission" shall mean the Securities and Exchange Commission
or any other federal agency then administering the Securities Act and other
federal securities laws.
"Common Stock" shall mean (except where the context otherwise
indicates) the Common Stock, par value $.01 per share, of the Company as
constituted on the date hereof, and any capital stock into which such Common
Stock may thereafter be changed, and shall also include (i) capital stock of
the Company of any other class (regardless of how denominated) issued to the
holders of shares of Common Stock upon any reclassification thereof which is
also not preferred as to dividends or assets over any other class of stock of
the Company and which is not subject to redemption and (ii) shares of common
stock of any successor or acquiring corporation (as defined in Section 4.8)
received by or distributed to the holders of Common Stock of the Company in the
circumstances contemplated by Section 4.8.
"Convertible Securities" shall mean evidences of indebtedness,
shares of stock or other securities which are convertible into or exchangeable
for, with or without payment of additional consideration in cash or property,
Additional Shares of Common Stock, either immediately or upon the arrival of a
specified date or the occurrence of a specified event.
"Current Market Price" shall mean, in respect of any share of
Common Stock on any date herein specified, the highest of (a) the Book Value
per share of Common Stock at such date, and (b) the Appraised Value per share
of Common Stock as at such date, or if there shall then be a public market for
the Common Stock, the highest of (x) the Book Value per share of Common Stock
at such date, and (y) the average of the daily market prices for thirty (30)
consecutive Business Days commencing forty-five (45) days before such date.
The daily market price for each such Business Day shall be (i) the last sale
price on such day on the principal stock exchange on which such Common Stock is
then listed or admitted to trading, or if no sale takes place on such day on
any such exchange, the average of the last
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<PAGE> 6
reported closing bid and asked prices on such day as officially quoted on any
such exchange, or (ii) if the Common Stock is not then listed or admitted to
trading on any stock exchange, the average of the last reported closing bid and
asked prices on such day in the over-the-counter market, as furnished by the
National Association of Securities Dealers Automated Quotation System
("NASDAQ") or by the National Quotation Bureau, Inc. if not reported on NASDAQ,
or if neither of the foregoing at the time is reporting such prices, as
furnished by any similar firm then engaged in such business, or if there is no
such firm, as furnished by any member of the NASD selected mutually by the
Majority Holders and the Company or, if they cannot agree upon such selection,
as selected by two such members of the NASD, one of which shall be selected by
the Majority Holders and one of which shall be selected by the Company.
"Current Warrant Price" shall mean, in respect of a share of
Common Stock at any date herein specified, $2,000,000 (or the amount to which
such exercise price may be adjusted) divided by 866,852 shares (as such amount
may be adjusted).
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended, or any similar federal statute, and the rules and regulations of
the Commission thereunder, all as the same shall be in effect from time to
time.
"Exercise Period" shall mean the period during which this
Warrant is exercisable pursuant to Section 2.1.
"Expiration Date" shall mean July 31, 1999.
"Externally Raised Funds" shall mean funds raised or received
by the Company after the date hereof from either (i) any sale by the Company or
any Subsidiary, agent or underwriter for the Company of debt or equity
securities, other than the delivery of Common Stock pursuant to this Warrant,
or the Management Options, or (ii) any loan or other extension of credit to the
Company by any person other than GE Capital and other than ordinary trade
credit or credit obtained by the Company in the ordinary course of the
Company's business.
"Fully Diluted Outstanding" shall mean, when used with
reference to Common Stock, at any date as of which the number of shares thereof
is to be determined, all shares of Common Stock outstanding at such date and
all shares of Common Stock issuable in respect of this Warrant, the Management
Options, and any other outstanding options, warrants or other rights to
purchase or receive Common Stock.
"GAAP" shall mean generally accepted accounting principles in
the United States of America as from time to time in effect.
-3-
<PAGE> 7
"GE Capital" shall mean General Electric Capital Corporation,
a New York corporation.
"Holder" shall mean the Person or Persons in whose name the
Warrant set forth herein is registered on the books of the Company maintained
for such purpose.
"Loan Agreement" shall mean that certain loan agreement dated
as of March 31, 1992 among the Company, GE Capital, as Agent, and the Lenders
named therein.
"Majority Holders" shall mean the holders of Warrants
exercisable for in excess of fifty percent (50%) of the aggregate number of
shares of Common Stock then purchasable upon exercise of all Warrants, whether
or not then exercisable.
"Management Options" shall mean any options to acquire shares
of Common Stock pursuant to the Management Equity Incentive Plan.
"NASD" shall mean the National Association of Securities
Dealers, Inc., or any successor corporation thereto.
"Other Property" shall have the meaning set forth in Section
4.8.
"Outstanding" shall mean, when used with reference to Common
Stock, at any date as of which the number of shares thereof is to be
determined, all issued shares of Common Stock, except shares then owned or held
by or for the account of the Company or any Subsidiary thereof, and shall
include all shares issuable in respect of outstanding scrip or any certificates
representing fractional interests in shares of Common Stock.
"Permitted Issuances" shall mean the issuance of the
Management Options or the issuance of shares of Common Stock upon exercise of
(i) this Warrant or (ii) the Management Options.
"Person" shall mean any individual, sole proprietorship,
partnership, joint venture, trust, incorporated organization, association,
corporation, institution, public benefit corporation, entity or government
(whether federal, state, county, city, municipal or otherwise, including,
without limitation, any instrumentality, division, agency, body or department
thereof).
"Plan of Reorganization" shall mean the plan of reorganization
of the Company and its affiliates under Chapter 11 of the Bankruptcy Code dated
March 31, 1992 as confirmed by order of Bankruptcy Judge Richard DeGunther
dated March 31, 1992.
-4-
<PAGE> 8
"Restricted Common Stock" shall mean shares of Common Stock
which are, or which upon their issuance on the exercise of this Warrant would
be, evidenced by a certificate bearing the restrictive legend set forth in
Section 8.1(a).
"Securities Act" shall mean the Securities Act of 1933, as
amended, or any similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
"Subsidiary" shall mean, with respect to any Person, any
corporation of which outstanding stock having ordinary voting power to elect a
majority of the board of directors of such corporation (irrespective of
whether, at the time, stock of any other class or classes of such corporation
shall have or might have voting power by reason of the happening of any
contingency) is at the time, directly or indirectly, owned legally or
beneficially by such Person and/or one or more Subsidiaries of such Person.
"Transfer" shall mean any disposition of any Warrant or
Warrant Stock or of any interest in either thereof, which would constitute a
sale or gift thereof within the meaning of the Securities Act.
"Transfer Notice" shall have the meaning set forth in Section
8.2.
"Warrants" shall mean this Warrant and all warrants issued
upon transfer, division or combination of, or in substitution for, this
Warrant. All Warrants shall at all times be identical as to terms and
conditions and date, except as to the number of shares of Common Stock for
which they may be exercised.
"Warrant Price" shall mean an amount equal to (i) the number
of shares of Common Stock being purchased upon exercise of this Warrant
pursuant to Section 2.1, multiplied by (ii) the Current Warrant Price as of the
date of such exercise.
"Warrant Stock" shall mean the shares of Common Stock
purchased by the holders of the Warrants upon the exercise thereof.
2. EXERCISE OF WARRANT
2.1 Manner of Exercise. From and after the date hereof and until
5.00 p.m., central daylight time, on the Expiration Date, Holder may exercise
this Warrant, on any Business Day, for all or any part of the number of shares
of Common Stock purchasable hereunder.
-5-
<PAGE> 9
In order to exercise this Warrant, in whole or in part, Holder
shall deliver to the Company at its principal office at 1245 Corporate Blvd.,
Suite 401, Aurora, Illinois 60504 or at the office or agency designated by the
Company pursuant to Section 12, (i) a written notice of Holder's election to
exercise this Warrant, which notice shall specify the number of shares of
Common Stock to be purchased, (ii) payment of the Warrant Price in the manner
specified below, and (iii) this Warrant. Such notice shall be substantially in
the form of the subscription form appearing at the end of this Warrant as
Exhibit A, duly executed by Holder or its agent or attorney. Upon receipt
thereof, the Company shall, as promptly as practicable, and in any event within
five (5) Business Days thereafter, execute or cause to be executed and
deliver/or cause to be delivered to Holder a certificate or certificates
countersigned and registered by the Company's transfer agent or registrar, if
any there be, representing the aggregate number of full shares of Common Stock
issuable upon such exercise, together with cash in lieu of any fraction of a
share, as hereinafter provided. The stock certificate or certificates so
delivered shall be, to the extent possible, in such denomination or
denominations as such Holder shall request in the notice and shall be
registered in the name of Holder or, subject to Section 8, such other name as
shall be designated in the notice. This Warrant shall be deemed to have been
exercised and such certificate or certificates shall be deemed to have been
issued, and Holder or any other Person so designated to be named therein shall
be deemed to have become a holder of record of such shares for all purposes, as
of the date the notice, together with the payment as set forth below, and this
Warrant are received by the Company as described above and all taxes required
to be paid by Holder, if any, pursuant to Section 2.2 prior to the issuance of
such shares have been paid or agreed to be paid when finally determined. If
this Warrant shall have been exercised in part, the Company shall, at the time
of delivery of the certificate or certificates representing Warrant Stock,
deliver to Holder a new Warrant evidencing the rights of Holder to purchase the
unpurchased shares of Common Stock called for by this Warrant, which new
Warrant shall in all other respects be identical with this Warrant, or, at the
request of Holder, appropriate notation may be on this Warrant and the same
returned to Holder. Notwithstanding any provision herein to the contrary, the
Company shall not be required to register Warrants and shares in the name of
any Person who acquired this Warrant (or part hereof) or any Warrant Stock
otherwise than in accordance with this Warrant.
Payment of the Warrant Price shall be made at the option of
the Holder by certified or official bank check, by General Electric Capital
Corporation check or draft, by cancellation of indebtedness, if any, owed by
the Company to such Holder or by any combination thereof.
-6-
<PAGE> 10
2.2 Payment of Taxes. All shares of Common Stock issuable upon
the exercise of this Warrant pursuant to the terms hereof shall be validly
issued, fully paid and nonassessable and, to the extent permitted by law, free
of liens and any preemptive rights. The Company shall pay all expenses in
connection with, and all taxes and other governmental charges that may be
imposed with respect to, the issue or delivery thereof, unless such tax or
charge is imposed by law upon Holder, in which case such taxes or charges shall
be paid by Holder. The Company shall not be required, however, to pay any tax
or other charge imposed in connection with any transfer involved in the issue
of any certificate for shares of Common Stock issuable upon exercise of this
Warrant in any name other than that of Holder, and in such case the Company
shall not be required to issue or deliver any stock certificate until such tax
or other charge has been paid or it has been established to the satisfaction of
the Company that no such tax or other charge is due.
2.3 Fractional Shares. The Company may but shall not be required
to issue a fractional share of Common Stock upon exercise of any Warrant. As
to any fraction of a share which the Holder of one or more Warrants, the rights
under which are exercised in the same transaction, would otherwise be entitled
to purchase upon such exercise, but for the Company's election not to issue a
fractional share, the Company shall pay a cash adjustment in respect of such
final fraction in an amount equal to the same fraction of the Current Market
Price per share of Common Stock on the date of exercise. If the determination
of Current Market Price for purposes of this Section 2.3 shall require an
appraisal to be made by an investment banking firm, Current Market Price for
such purposes shall mean Book Value per share of Common Stock on the date of
exercise unless a determination of Appraised Value had been made within six
months prior to such date, in which case, the higher of Book Value or Appraised
Value shall be used to make such determination.
2.4 Continued Validity. A holder of shares of Restricted Common
Stock issued upon the exercise of this Warrant, in whole or in part, shall
continue to be entitled with respect to such shares to all rights to which it
would have been entitled as Holder under Sections 8, 9, 13, and 16 of this
Warrant. The Company will, at the time of each exercise of this Warrant, in
whole or in part, upon the request of the holder of the shares of Common Stock
issued upon such exercise hereof, acknowledge in writing, in form reasonably
satisfactory to such holder, its continuing obligation to afford to such holder
all such rights and subject to any burdens; provided, however, that if such
holder shall fail to make any such request, such failure shall not affect the
continuing obligation of the Company to afford to such holder all such rights.
-7-
<PAGE> 11
3. TRANSFER, DIVISION AND COMBINATION
3.1 Transfer. Subject to compliance with Section 8 transfer of
this Warrant and all rights hereunder, in whole or in part, shall be registered
on the books of the Company to be maintained for such purpose, upon surrender
of this Warrant at the principal office of the Company referred to in Section
2.1 or the office or agency designated by the Company pursuant to Section 12,
together with a written assignment of this Warrant substantially in the form of
Exhibit B hereto duly executed by Holder or its agent or attorney and delivery
of funds sufficient to pay any transfer taxes payable upon the making of such
transfer. Upon such surrender and, if required, such payment, the Company
shall, subject to Section 8, execute and deliver a new Warrant or Warrants in
the name of the assignee or assignees and in the denomination specified in such
instrument of assignment, and shall issue to the assignor a new Warrant
evidencing the portion of this Warrant, if any, not so assigned, and this
Warrant shall promptly be cancelled. A Warrant, if properly assigned in
compliance with Section 8, may be exercised by a new Holder for the purchase of
shares of Common Stock without having a new Warrant issued. If requested by
the Company, a new Holder shall acknowledge in writing, in form reasonably
satisfactory to the Company, such Holder's continuing obligation under Section
8 of this Warrant.
3.2 Division and Combination. Subject to Section 8, this Warrant
may be divided or combined with other Warrants upon presentation hereof at the
aforesaid office or agency of the Company, together with a written notice
specifying the names and denominations in which new Warrants are to be issued,
signed by Holder or its agent or attorney. Subject to compliance with Section
3.1 and with Section 8, as to any transfer which may be involved in such
division or combination, the Company shall execute and deliver a new Warrant or
Warrants in exchange for the Warrant or Warrants to be divided or combined in
accordance with such notice.
3.3 Expenses. The Company shall pay all expenses, taxes (other
than transfer taxes) and other charges payable in connection with preparation,
issuance and delivery of the new warrant or Warrants under this Section 3.
3.4 Maintenance of Books. The Company agrees to maintain, at its
aforesaid office or agency, books for the registration, and the registration of
transfer, of the Warrants.
4. ADJUSTMENTS
The number of shares of Common Stock for which this Warrant is
exercisable, and the price at which such shares may be purchased upon exercise
of this Warrant, shall be subject to
-8-
<PAGE> 12
adjustment from time to time as set forth in this Section 4. The Company shall
give each Holder notice of any event described below which requires an
adjustment pursuant to this Section 4 at the time of such event.
4.1 Stock Dividends, Subdivisions and Combinations. If
at any time the Company shall:
(a) take a record of the holders of its Common Stock for
the purpose of entitling them to receive a dividend payable in, or
other distribution of, Additional Shares of Common Stock,
(b) subdivide its outstanding shares of Common Stock into
a larger number of shares of Common Stock, or
(c) combine its outstanding shares of Common Stock into a
smaller number of shares of Common Stock,
then (i) the number of shares of Common Stock for which this Warrant is
exercisable immediately after the occurrence of any such event shall be
adjusted to equal the number of shares of Common Stock which a record holder of
the same number of shares of Common Stock for which this Warrant is exercisable
immediately prior to the occurrence of such event would own or be entitled to
receive after the happening of such event, and (ii) the Current Warrant Price
shall be adjusted to equal (A) the Current Warrant Price multiplied by the
number of shares of Common Stock for which this Warrant is exercisable
immediately prior to the adjustment divided by (B) the number of shares for
which this Warrant is exercisable immediately after such adjustment.
4.2 Certain Other Distributions. If at any time the Company shall
take a record of the holders of its Common Stock for the purpose of entitling
them to receive any dividend or other distribution of:
(a) cash (other than a cash distribution or dividend
which is permitted under the Loan Agreement and which is payable out
of earnings or earned surplus legally available for the payment of
dividends under the laws of the jurisdiction of incorporation of the
Company);
(b) any evidences of its indebtedness, any shares of its
stock or any other securities or property of any nature whatsoever
(other than cash, Convertible Securities or Additional Shares of
Common Stock); or
(c) any warrants or other rights to subscribe for or
purchase any evidences of its indebtedness, any shares of its stock or
any other securities or property of any nature
-9-
<PAGE> 13
whatsoever (other than cash, Convertible Securities or Additional
Shares of Common Stock);
then (i) the number of shares of Common Stock for which this Warrant is
exercisable shall be adjusted to equal the product of the number of shares of
Common Stock for which this Warrant is exercisable immediately prior to such
adjustment by a fraction (A) the numerator of which shall be the Current Market
Price per share of Common Stock at the date of taking such record, and (B) the
denominator of which shall be (x) such Current Market Price per share of Common
Stock, minus (y) the amount allocable to one share of Common Stock of any such
cash so distributable and of the fair value (as determined in good faith by the
Board of Directors of the Company and supported by an opinion from an
investment banking firm of recognized national standing acceptable to the
Majority Holders) of any and all such evidences of indebtedness, shares of
stock, other securities or property or warrants or other subscription or
purchase rights so distributable, and (ii) the Current Warrant Price shall be
adjusted to equal (A) the Current Warrant Price multiplied by the number of
shares of Common Stock for which this Warrant is exercisable immediately prior
to the adjustment divided by (B) the number of shares for which this Warrant is
exercisable immediately after such adjustment. A reclassification of the
Common Stock (other than a change in par value, or from par value to no par
value) into shares of Common Stock and shares of any other class of stock shall
be deemed a distribution by the Company to the holders of its Common Stock of
such shares of such other class of stock within the meaning of this Section 4.2
and, if the outstanding shares of Common Stock shall be changed into a larger
or smaller number of shares of Common Stock as a part of such reclassification,
such change shall be deemed a subdivision or combination, as the case may be,
of the outstanding shares of Common Stock within the meaning of Section 4.1.
4.3 Issuance of Additional Shares of Common Stock. (a) If at any
time the Company shall (except as hereinafter provided) issue or sell any
Additional Shares of Common Stock, other than Permitted Issuances, then: (i)
the number of shares of Common Stock for which this Warrant is exercisable
shall be adjusted to equal the product obtained by multiplying the number of
shares of Common Stock for which this Warrant is exercisable immediately prior
to such issue or sale by a fraction (W) the numerator of which is the number of
shares of Common Stock Outstanding immediately after the issuance or sale of
such Additional Shares of Common Stock, and (X) the denominator of which is the
number of shares of Common Stock Outstanding immediately prior to such issuance
or sale; and (ii) if such Additional Shares of Common Stock are issued or sold
for consideration in an amount per Additional Share of Common Stock less than
the greater of the Current Warrant Price or the Current Market Price, then the
Current Warrant Price shall be reduced to the lower of (I) a
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<PAGE> 14
price determined by dividing (A) an amount equal to the sum of (Y) the number
of shares of Common Stock Outstanding immediately prior to such issuance or
sale multiplied by the then existing Current Warrant Price, plus (Z) the
consideration, if any, received by the Company upon such issuance or sale, by
(B) the total number of shares of Common Stock Outstanding immediately after
such issuance or sale and (II) a price determined by multiplying the Current
Warrant Price by a fraction, the numerator of which is (A) the sum of (1) the
number of shares of Common Stock Outstanding immediately prior to such issue or
sale multiplied by the Current Market Price per share of Common Stock
immediately prior to such issue or sale plus (2) the aggregate consideration,
if any, received by the Company upon such issue or sale, divided by (B) the
total number of shares of Common Stock Outstanding immediately after such issue
or sale, and the denominator of which shall be the Current Market Price per
share of Common Stock immediately prior to such issue or sale.
(b) The provisions of paragraph (a) of Section 4.3 shall not apply
to any issuance of Additional Shares of Common Stock for which an adjustment is
provided under Section 4.1 or 4.2. No adjustment of the number of shares of
Common Stock for which this Warrant shall be exercisable or the Current Warrant
Price shall be made under paragraph (a) of Section 4.3 upon the issuance of any
Additional Shares of Common Stock which are issued pursuant to the exercise of
any warrants, options or other subscription or purchase rights or pursuant to
the exercise of any conversion or exchange rights in any Convertible
Securities, if any such adjustment shall previously have been made upon the
issuance of such warrants, options or other rights or upon the issuance of such
Convertible Securities (or upon the issuance of any warrant or other rights
therefor) pursuant to Section 4.4 or Section 4.5.
4.4 Issuance of Warrants or Other Rights. If at any time the
Company shall take a record of the holders of its Common Stock for the purpose
of entitling them to receive a distribution of, or shall in any manner (whether
directly or by assumption in a merger in which the Company is the surviving
corporation) issue or sell, any warrants or other rights to subscribe for or
purchase any Additional Shares of Common Stock or any Convertible Securities
other than Permitted Issuances, whether or not the rights to exchange or
convert thereunder are immediately exercisable, then the number of shares of
Common Stock for which this Warrant is exercisable shall be adjusted as
provided in Section 4.3 (and if the Warrant consideration as provided in
Section 4.7 per Common Stock share receivable upon exercise of such warrants or
other rights or upon conversion or exchange of such Convertible Securities
shall be less than either the Current Warrant Price or the Current Market Price
in effect immediately prior to the time of such issue or sale, then the Current
Warrant Price shall be adjusted as provided in Section 4.3) on the basis
-11-
<PAGE> 15
that (i) the maximum number of Additional Shares of Common Stock issuable
pursuant to all such warrants or other rights or necessary to effect the
conversion or exchange of all such Convertible Securities shall be deemed to
have been issued and outstanding, (ii) the price per share of such Additional
Shares of Common Stock shall be deemed to be the lowest possible price per
share at which such Additional Shares of Common Stock are available to such
holders, and (iii) the Company shall have received all of the consideration
payable therefor, if any, as of the date of the actual issuance of such
warrants or other rights. No further adjustments of the number of shares for
which this Warrant is exercisable or the Current Warrant Price shall be made
upon the actual issue of such Common Stock or of such Convertible Securities
upon exercise of such warrants or other rights or upon the actual issue of such
Common Stock upon such conversion or exchange of such Convertible Securities,
provided that, where no such adjustment has been made at the time of issuance,
an adjustment shall be made at the time of the conversion of any such
Convertible Securities or at the time of the exercise of any such warrants or
other rights if such an adjustment is required by Section 4.3.
4.5 Issuance of Convertible Securities. If at any time the
Company shall take a record of the holders of its Common Stock for the purpose
of entitling them to receive a distribution of, or shall in any manner (whether
directly or by assumption in a merger in which the Company is the surviving
corporation) issue or sell, any Convertible Securities other than Permitted
Issuances, whether or not the rights to exchange or convert thereunder are
immediately exercisable, then the number of shares of Common Stock for which
this Warrant is exercisable shall be adjusted as provided for in Section 4.3
(and if the Convertible Securities consideration (as provided in Section 4.7)
or a common share equivalent basis shall be less than the Current Warrant Price
or Current Market Price in effect immediately prior to the time of such issue
or sale, then the Current Warrant Price shall be adjusted as provided in
Section 4.3) on the basis that (i) the maximum number of Additional Shares of
Common Stock necessary to effect the conversion or exchange of all such
Convertible Securities shall be deemed to have been issued and outstanding,
(ii) the aggregate consideration for such maximum number of Additional Shares
of Common Stock shall be deemed to be the minimum consideration receivable by
the Company for the issuance of such Additional Shares of Common Stock pursuant
to the terms of such Convertible Securities, and (iii) the Company shall have
received all of the consideration payable therefor, if any, as of the date of
actual issuance of such Convertible Securities. No adjustment of the number of
shares for which this Warrant is exercisable or the Current Warrant Price shall
be made under this Section 4.5 upon the issuance of any Convertible Securities
which are issued pursuant to the exercise of any warrants or other subscription
or purchase rights therefor, if any such adjustment
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shall previously have been made upon the issuance of such warrants or other
rights pursuant to Section 4.4. No further adjustments of the number of shares
for which this Warrant is exercisable or the Current Warrant Price shall be
made upon the actual issue of such Common Stock upon conversion or exchange of
such Convertible Securities and, if any issue or sale of such Convertible
Securities is made upon exercise of any warrant or other right to subscribe for
or to purchase or any warrant or other right to purchase any such Convertible
Securities for which adjustments of the number of shares for which this Warrant
is exercisable or the Current Warrant Price have been or are to be made
pursuant to other provisions of this Section 4, no further adjustments of the
number of shares for which this Warrant is exercisable or the Current Warrant
Price shall be made by reason of such issue or sale.
4.6 Superseding Adjustment. If, at any time after any adjustment
of the number of shares of Common Stock for which this Warrant is exercisable
shall have been made pursuant to Section 4.4 or Section 4.5 as the result of
any issuance of warrants, rights or Convertible Securities,
(a) such warrants or rights, or the right of conversion
or exchange in such other Convertible Securities, shall expire, and
all or a portion of such warrants or rights, or the right of
conversion or exchange with respect to all or a portion of such other
Convertible Securities, as the case may be, shall not have been
exercised, or
(b) the consideration per share for which shares of
Common Stock are issuable pursuant to such warrants or rights, or the
terms of such other Convertible Securities, shall be increased solely
by virtue of provisions therein contained for an automatic increase in
such consideration per share upon the occurrence of a specified date
or event,
then such previous adjustment shall be rescinded and annulled and the
Additional Shares of Common Stock which were deemed to have been issued by
virtue of the computation made in connection with the adjustment so rescinded
and annulled shall no longer be deemed to have been issued by virtue of such
computation. Thereupon, a recomputation shall be made of the effect of such
rights or options or other Convertible Securities on then outstanding Warrants
pro rata as though all warrants were outstanding and unexercised, but not on
any then outstanding Warrant Stock, on the basis of
(c) treating the number of Additional Shares of Common
Stock or other property, if any, theretofore actually issued or
issuable pursuant to the previous exercise of any such warrants or
rights or any such right of conversion or exchange, as having been
issued on the date or dates of any
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such exercise and for the consideration actually received and
receivable therefor, and
(d) treating any such warrants or rights or any such
other Convertible Securities which then remain outstanding as having
been granted or issued immediately after the time of such increase of
the consideration per share for which shares of Common Stock or other
property are issuable under such warrants or rights or other
Convertible Securities.
4.7 Other Provisions Applicable to Adjustments under this Section.
The following provisions shall be applicable to the making of adjustments
provided for in this Section 4:
(a) Computation of Consideration. To the extent that any
Additional Shares of Common Stock or any Convertible Securities or any
warrants or other rights to subscribe for or purchase any Additional
Shares of Common Stock or any Convertible Securities shall be issued
for cash consideration, the consideration received by the Company
therefor shall be the amount of the cash received by the Company
therefor, or, if such Additional Shares of Common Stock or Convertible
Securities are offered by the Company for subscription, the
subscription price, or, if such Additional Shares of Common Stock or
Convertible Securities are sold to underwriters or dealers for public
offering without a subscription offering, the initial public offering
price (in any such case subtracting any amounts paid or receivable for
accrued interest or accrued dividends, but not subtracting any
compensation, discounts or expenses paid or incurred by the Company
for and in the underwriting of, or otherwise in connection with, the
issuance thereof). To the extent that such issuance shall be for a
consideration other than cash, then, except as herein otherwise
expressly provided, the amount of such consideration shall be deemed
to be the fair value of such consideration at the time of such
issuance as determined in good faith by the Board of Directors of the
Company or, if so requested by at least fifty percent (50%) of the
Holders, by a nationally recognized independent financial expert
selected by the Holders provided, however, that issuance in
consideration for employees remaining in service with the Company
shall be deemed issuance for no consideration. In case any Additional
Shares of Common Stock or any Convertible Securities or any warrants
or other rights to subscribe for or purchase such Additional Shares of
Common Stock or Convertible Securities shall be issued in connection
with any merger in which the Company issues any securities, the amount
of consideration therefor shall be deemed to be the fair value, as
determined in good faith by the Board of Directors of the Company or,
if so requested by at least fifty percent (50%) of the Holders, by a
nationally
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recognized independent financial expert selected by the Holders
provided, however, that issuance in consideration for employees
remaining in service with the Company shall be deemed issuance for no
consideration, of such portion of the assets and business of the
nonsurviving corporation as the Board or such financial expert in good
faith shall determine to be attributable to such Additional Shares of
Common Stock, Convertible Securities, warrants or other rights, as the
case may be. The consideration for any Additional Shares of Common
Stock issuable pursuant to any warrants or other rights to subscribe
for or purchase the same shall be the consideration, if any, received
by the Company for issuing such warrants or other rights plus the
additional consideration payable to the Company upon exercise of such
warrants or other rights. The consideration for any Additional Shares
of Common Stock issuable pursuant to the terms of any Convertible
Securities shall be the consideration received by the Company for
issuing warrants or other rights to subscribe for or purchase such
Convertible Securities, plus the consideration paid or payable to the
Company in respect of the subscription for or purchase of such
Convertible Securities, plus the additional consideration, if any,
payable to the Company upon the exercise of the right of conversion or
exchange contained in such Convertible Securities. In case of the
issuance at any time of any Additional Shares of Common Stock or
Convertible Securities in payment or satisfaction of any dividends
upon any class of stock other than Common Stock, the Company shall be
deemed to have received for such Additional Shares of Common Stock or
Convertible Securities a consideration equal to the amount of such
dividend so paid or satisfied.
(b) When Adjustments to Be Made. The adjustments
required by this Section 4 shall be made whenever and as often as any
specified event requiring an adjustment shall occur, except that any
adjustment of the number of shares of Common Stock for which this
Warrant is exercisable that would otherwise be required may be
postponed (except in the case of a subdivision or combination of
shares of the Common Stock, as provided for in Section 4.1) up to, but
not beyond the date of exercise if such adjustment either by itself or
with other adjustments not previously made adds or subtracts less than
.1% of the shares of Common Stock for which this Warrant is
exercisable immediately prior to the making of such adjustment. Any
adjustment representing a change of less than such minimum amount
(except as aforesaid) which is postponed shall be carried forward and
made as soon as such adjustment, together with other adjustments
required by this Section 4 and not previously made, would result in a
minimum adjustment or on the date of exercise. For the purpose of any
adjustment, any specified event shall be deemed to have
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<PAGE> 19
occurred at the close of business on the date of its occurrence.
(c) Fractional Interests. In computing adjustments under
this Section 4, fractional interests in Common Stock shall be taken
into account to the nearest 1/10th of a share.
(d) When Adjustment Not Required. If the Company shall
take a record of the holders of its Common Stock for the purpose of
entitling them to receive a dividend or distribution or subscription
or purchase rights and shall, thereafter and before the distribution
to stockholders thereof, legally abandon its plan to pay or deliver
such dividend, distribution, subscription or purchase rights, then
thereafter no adjustment shall be required by reason of the taking of
such record and any such adjustment previously made in respect thereof
shall be rescinded and annulled.
(e) Deferral of Issuance of Warrant Stock. If after any
cash or property of any type or kind, including evidences of
indebtedness, becomes distributable pursuant to this Section 4 by
reason of the taking of any record of the holders of Common Stock, but
prior to the occurrence of the event for which such record is taken,
Holder exercises this Warrant, then the Company may elect to defer the
issuance of Additional Shares of Common Stock to Holder resulting from
the occurrence of such event until such event actually takes place;
provided that the Company shall deliver to Holder a due bill or other
appropriate instrument evidencing Holder's right to receive such
Additional Shares upon the occurrence of any such event.
Notwithstanding any other provision to the contrary herein, if the
event for which such record was taken fails to occur or is rescinded,
then such due bill shall be deemed cancelled and such right to receive
such Additional Shares shall terminate.
(f) Challenge to Good Faith Determination. Whenever the
Board of Directors of the Company shall be required to make a
determination in good faith of the fair value of any item under this
Section 4, such determination may be challenged in good faith by the
Majority Holders, and any dispute shall be resolved by an investment
banking firm of recognized national standing selected by the Company
and acceptable to such Majority Holders.
(g) Treasury Stock. The sale or other disposition of any
issued shares of Common Stock owned or held by or for the account of
the Company or any of its Subsidiaries shall be deemed an issuance
thereof for the purposes of this Section.
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4.8 Reorganization, Reclassification, Merger, Consolidation or
Disposition of Assets. In case the Company shall reorganize its capital,
reclassify its capital stock, consolidate or merge with or into another
corporation (where the Company is not the surviving corporation), or sell,
transfer or otherwise dispose of all or substantially all its property, assets
or business to another corporation and, pursuant to the terms of such
reorganization, reclassification, merger, consolidation or disposition of
assets, shares of common stock of the successor or acquiring corporation, or
any cash, shares of stock or other securities or property of any nature
whatsoever (including warrants or other subscription or purchase rights) in
addition to or in lieu of common stock of the successor or acquiring
corporation ("Other Property"), are to be received by or distributed to the
holders of Common Stock of the Company, then each Holder shall have the right
thereafter to receive, upon exercise of such Holder's Warrant, the number of
shares of common stock of the successor or acquiring corporation and Other
Property receivable upon or as a result of such reorganization,
reclassification, merger, consolidation or disposition of assets by a holder of
the number of shares of Common Stock for which this Warrant is exercisable
immediately prior to such event. In case of any such reorganization,
reclassification, merger, consolidation or disposition of assets, the successor
or acquiring corporation shall expressly assume the due and punctual observance
and performance of each and every covenant and condition of this Warrant to be
performed and observed by the Company and all the obligations and liabilities
hereunder, subject to such modifications as may be deemed appropriate (as
determined by resolution of the Board of Directors of the Company) in order to
provide for adjustments of shares of the Common Stock for which this Warrant is
exercisable which shall be as nearly equivalent as practicable to the
adjustments provided for in this Section 4. For purposes of this Section 4.8
"common stock of the successor or acquiring corporation" shall include stock of
such corporation of any class which is not preferred as to dividends or rights
on liquidation over any other class of stock of such corporation and which is
not subject to redemption and shall also include any evidences of indebtedness,
shares of stock or other securities which are convertible into or exchangeable
for any such stock, either immediately or upon the arrival of a specified date
or the happening of a specified event and any warrants or other rights to
subscribe for or purchase any such stock. The foregoing provisions of this
Section 4.8 shall similarly apply to successive reorganizations,
reclassifications, mergers, consolidations or disposition of assets.
4.9 Other Action Affecting Common Stock. In case at any time or
from time to time the Company shall take any action in respect of its Common
Stock, other than the payment of dividends permitted by Section 4.2(a) or any
other action described in this Section 4, then, unless such action will not
have a materially
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adverse effect upon the rights of the Holders, the number of shares of Common
Stock or other stock for which this Warrant is exercisable and/or the purchase
price thereof shall be adjusted in such manner as may be equitable in the
circumstances.
5. NOTICES TO WARRANT HOLDERS
5.1 Notice of Adjustments. Whenever the number of shares of
Common Stock for which this Warrant is exercisable, or whenever the price at
which a share of such Common Stock may be purchased upon exercise of the
Warrants, shall be adjusted pursuant to Section 4, the Company shall forthwith
prepare a certificate to be executed by the chief financial officer of the
Company setting forth, in reasonable detail, the event requiring the adjustment
and the method by which such adjustment was calculated (including a description
of the basis on which the Board of Directors of the Company determined the fair
value of any evidences of indebtedness, shares of stock, other securities or
property or warrants or other subscription or purchase rights referred to in
Section 4.2 or 4.7(a)), specifying the number of shares of Common Stock for
which this Warrant is exercisable and (if such adjustment was made pursuant to
Section 4.8 or 4.9) describing the number and kind of any other shares of stock
or Other Property for which this Warrant is exercisable, and any change in the
purchase price or prices thereof, after giving effect to such adjustment or
change. The Company shall promptly cause a signed copy of such certificate to
be delivered to each Holder in accordance with Section 16.2. The Company shall
keep at its office or agency designated pursuant to Section 12 copies of all
such certificates and cause the same to be available for inspection at said
office during normal business hours by any Holder or any prospective purchaser
of a Warrant designated by a Holder thereof.
5.2 Notice of Certain Corporate Action. In case the Company shall
propose (a) to pay any dividend payable in stock of any class to the holders of
its Common Stock or to make any other distribution to the holders of its Common
Stock or (b) to offer to the holders of its Common Stock rights to subscribe
for or to purchase any Convertible Securities or Additional Shares of Common
Stock or shares of stock of any class or any other securities, rights or
options, or (c) to effect any reclassification of its Common Stock (other than
a reclassification involving only the subdivision or combination of outstanding
shares of Common Stock), or (d) to effect any capital reorganization, or (e) to
effect any consolidation, merger or sale, transfer or other disposition of all
or substantially all its property, assets or business, or (f) to effect the
liquidation, dissolution or winding up of the Company, then in each such case,
the Company shall give to each holder of a Warrant in accordance with Section
16, a notice of such proposed action, which shall specify the date on which a
record is to be
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taken for the purposes of such stock dividend, distribution or rights, or the
date on which such reclassification, reorganization, consolidation, merger,
sale, transfer, disposition, liquidation, dissolution or winding up is to take
place and the date of participation therein by the holders of Common Stock, if
any such date is to be fixed, as well as the record date for any vote on any
such action and shall also set forth such facts with respect thereto as shall
be reasonably necessary to indicate the effect of such action on the Common
Stock and the number and kind of any other shares of stock which will
constitute Warrant Stock, and the purchase price or prices thereof, after
giving effect to any adjustment which will be required as a result of such
action. Such notice shall be so given in the case of any action covered by
clause (a) or (b) above at least twenty (20) days prior to the record date for
determining holders of the Common Stock for purposes of such action and, in the
case of any other such action, at least twenty (20) days prior to the date of
the taking of such proposed action or the date of participation therein by the
holders of Common Stock, whichever shall be the earlier.
6. NO IMPAIRMENT
The Company shall not by any action including, without
limitation, amending its certificate of incorporation or through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue
or sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of this Warrant, but will at all
times in good faith assist in the carrying out of all such terms and in the
taking of all such actions as may be necessary or appropriate to protect the
rights of Holder against impairment. Without limiting the generality of the
foregoing, the Company will (a) not increase the par value of any shares of
Common Stock receivable upon the exercise of this Warrant above the amount
payable therefor upon such exercise immediately prior to such increase in par
value, (b) take all such action as may be necessary or appropriate in order
that the Company may validly and legally issue fully paid and nonassessable
shares of Common Stock upon the exercise of this Warrant, and (c) use its best
efforts to obtain all such authorizations, exemptions or consents from any
public regulatory body having jurisdiction thereof as may be necessary to
enable the Company to perform its obligations under this Warrant.
Upon the request of Holder, the Company will at any time
during the period this Warrant is outstanding acknowledge in writing, in form
satisfactory to Holder, the continuing validity of this Warrant and the
obligations of the Company hereunder.
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7. RESERVATION AND AUTHORIZATION OF COMMON STOCK; REGISTRATION WITH OR
APPROVAL OF ANY GOVERNMENTAL AUTHORITY
From and after the date hereof, the Company shall at all times
reserve and keep available for issuance upon the exercise of Warrants such
number of its authorized but unissued shares of Common Stock as will be
sufficient to permit the exercise in full of all outstanding Warrants. All
shares of Common Stock which shall be so issuable, when issued upon exercise of
any Warrant and payment therefor in accordance with the terms of such Warrant,
shall be duly and validly issued and fully paid and nonassessable, issued free
of any lien arising through or under the issuer and not subject to preemptive
rights.
Before taking any action which would cause an adjustment
reducing the Current Warrant Price below the then par value, if any, of the
shares of Common Stock issuable upon exercise of the Warrants, the Company
shall take any corporate action which may be necessary in order that the
Company may validly and legally issue fully paid and nonassessable shares of
such Common Stock at such adjusted Current Warrant Price.
Before taking any action which would result in an adjustment
in the number of shares of Common Stock for which this Warrant is exercisable
or in the Current Warrant Price, the Company shall obtain all such
authorizations or exemptions thereof, or consents thereto, as may be necessary
from any public regulatory body or bodies having jurisdiction thereof.
If any shares of Common Stock required to be reserved for
issuance upon exercise of Warrants require registration or qualification with
any governmental authority under any federal or state law (otherwise than as
provided in Section 8) before such shares may be so issued, the Company will in
good faith and as expeditiously as possible and at its expense endeavor to
cause such shares to be duly registered or qualified; provided that the
provisions of Section 8 shall govern with respect to the Company's obligation
to effect the registration of its securities under the Securities Act.
8. RESTRICTIONS ON TRANSFERABILITY
The Warrants and the Warrant Stock shall not be transferred,
hypothecated or assigned before satisfaction of the conditions specified in
this Section 8, which conditions are intended to ensure compliance with the
provisions of the Securities Act and state law, with respect to the Transfer of
any Warrant or any Warrant Stock. Holder, by acceptance of this Warrant,
agrees to be bound by the provisions of this Section 8.
8.1 Restrictive Legend. (a) Except as otherwise provided in this
Section 8, each certificate for Warrant Stock initially
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issued upon the exercise of this Warrant, and each certificate for Warrant
Stock issued to any subsequent transferee of any such certificate, shall be
stamped or otherwise imprinted with a legend in substantially the following
form:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended, and are
subject to the conditions specified in a certain Warrant dated as of
March 31, 1992 originally issued by Specialty Equipment Companies,
Inc. No transfer of the shares represented by this certificate shall
be valid or effective until such conditions and any requirements of
state law have been fulfilled. A copy of the form of said Warrant is
on file with the Secretary of Specialty Equipment Companies, Inc. The
holder of this certificate, by acceptance of this certificate, agrees
to be bound by the provisions of such Warrant."
(b) Except as otherwise provided in this Section 8, each
Warrant shall be stamped or otherwise imprinted with a legend in substantially
the following form:
"This Warrant and the securities represented hereby have not
been registered under the Securities Act of 1933, as amended, and may
not be transferred in violation of such Act or state law, the rules
and regulations thereunder or the provisions of this Warrant."
8.2 Notice of Proposed Transfers; Requests for Registration.
Prior to any Transfer or attempted Transfer of any Warrants or any shares of
Restricted Common Stock, the holder of such Warrants or Restricted Common Stock
shall give ten days prior written notice (a "Transfer Notice") to the Company
of such holder's intention to effect such Transfer, describing the manner and
circumstances of the proposed Transfer, and shall obtain and deliver to the
Company an opinion (addressed to the Company and upon which the Company may
rely) from Cleary, Gottlieb, Steen & Hamilton or such other counsel to such
holder who shall be reasonably satisfactory to the Company, that the proposed
Transfer of such Warrants or such Restricted Common Stock may be effected
without registration under the Securities Act. After receipt of the Transfer
Notice and Opinion, the Company shall, within five days thereof, so notify the
holder of such Warrants or such Restricted Common Stock and such holder shall
thereupon be entitled to Transfer such Warrants or such Restricted Common
Stock, in accordance with the terms of the Transfer Notice. Each certificate,
if any, evidencing such shares of Restricted Common Stock issued upon such
Transfer shall bear the restrictive legend set forth in Section 8.1(a), and
each Warrant issued upon such Transfer shall bear the restrictive legend set
forth in Section 8.1(b), unless in the opinion of such counsel such legend is
not required in order to ensure compliance with the Securities Act.
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The holder of the Warrants or the Restricted Common Stock, as the case may be,
giving the Transfer Notice shall not be entitled to transfer and shall not
transfer such Warrants or such Restricted Common Stock until receipt of notice
from the Company under this Section 8.2.
The holders of Warrants and Warrant Stock shall have the right
to request registration of such Warrants and Warrant Stock pursuant to Sections
8.3 and 8.4.
8.3 Required Registration. After receipt of a written request
from the holders of Warrants and/or Warrant Stock representing at least an
aggregate of fifty percent (50%) of the total of (i) all shares of Warrant
Stock then subject to purchase upon exercise of all Warrants and (ii) all
shares of Warrant Stock then outstanding, requesting that the Company effect
the registration of Warrants and Warrant Stock issuable upon the exercise of
such holders' Warrants or of any of such holders' Warrant Stock under the
Securities Act and specifying the intended method or methods of disposition
thereof, the Company shall (i) promptly notify all holders of Warrants and
Warrant Stock in writing of the receipt of such request and each such holder,
in lieu of exercising its rights under Section 8.4, may elect (by written
notice sent to the Company within ten Business Days from the date of such
holder's receipt of the aforementioned Company's notice) to have its Warrants
and shares of Warrant Stock included in such registration thereof pursuant to
this Section 8.3; and (ii) as expeditiously as is possible, use its best
efforts to effect the registration under the Securities Act of all Warrants and
shares of Warrant Stock which the Company has been so requested to register by
such holders for sale, all to the extent required to permit the disposition (in
accordance with the intended method or methods thereof, as aforesaid) of the
Warrants and Warrant Stock so registered; provided, however, that the Company
shall not be required to effect more than two registrations of any Warrants and
Warrant Stock pursuant to this Section 8.3. No holder of Common Stock or of
any other warrant, Convertible Securities or other right to purchase shares of
Common Stock shall receive or be entitled to receive registration rights that
are more favorable than the registration rights available to the Holder
pursuant to the terms of this Section 8. Notwithstanding the other provisions
of this Section 8.3, the Company shall not be required to cause a registration
pursuant to this Section 8.3 to be declared effective within a one hundred and
eighty (180) day period after the Effective Date of any other registration
statement of the Company effected under this Section 8.3.
8.4 Incidental Registration. If the Company at any time proposes
to file on its behalf and/or on behalf of any of its security holders ("the
demanding security holders") a Registration Statement under the Securities Act
on any form
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(other than a Registration Statement on Form S-4 or S-8 or any successor form
for securities to be offered in a transaction of the type referred to in Rule
145 under the Securities Act or to employees of the Company pursuant to any
employee benefit plan, respectively) for the general registration of securities
to be sold for cash with respect to its Common Stock or any other class of
equity security (as defined in Section 3(a)(11) of the Exchange Act) of the
Company, it will give written notice to all holders of Warrants or Warrant
Stock at least sixty (60) days before the initial filing with the Commission of
such Registration Statement, which notice shall set forth the intended method
of disposition of the securities proposed to be registered by the Company. The
notice shall offer to include in such filing the aggregate number of Warrants
and shares of Warrant Stock, and the number of shares of Common Stock for which
this Warrant is exercisable, as such holders may request. Nothing herein shall
preclude the Company from discontinuing the registration of its securities
being effected on its behalf at any time prior to the effective date of the
registration relating thereto.
Each holder of any such Warrants or any such Warrant Stock
desiring to have Warrants and Warrant Stock registered under this Section 8.4
shall advise the Company in writing within 30 days after the date of receipt of
such offer from the Company, setting forth the amount of such Warrants and
Warrant Stock for which registration is requested. The Company shall thereupon
include in such filing the number of Warrants and Warrant Stock for which
registration is so requested, subject to the next sentence, and shall use its
best efforts to effect registration under the Securities Act of such Warrants
and shares. If the managing underwriter of a proposed public offering shall
advise the Company in writing that, in its opinion, the distribution of the
shares of Common Stock into which the Warrants are exercisable and the Warrants
and Warrant Stock requested to be included in the registration concurrently
with the securities being registered by the Company or such demanding security
holder would materially and adversely affect the distribution of such
securities by the Company or such demanding security holder, then all demanding
security holders (other than any selling security holder who requested such
registration and the Company (unless such Registration Statement was filed at
the request of a demanding security holder)) shall reduce the amount of
securities each intended to distribute through such offering on a pro rata
basis. Except as otherwise provided in Section 8.6, all expenses of such
registration shall be borne by the Company.
8.5 Registration Procedures. If the Company is required by the
provisions of this Section 8 to use its best efforts to effect the registration
of any of its securities under the Securities Act, the Company will, as
expeditiously as possible:
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(a) prepare and file with the Commission a Registration
Statement with respect to such securities and use its best efforts to
cause such Registration Statement to become and remain effective;
(b) prepare and file with the Commission such amendments
and supplements to such Registration Statement and the prospectus used
in connection therewith as may be necessary to keep such Registration
Statement effective and to comply with the provisions of the
Securities Act with respect to the sale or other disposition of all
securities covered by such Registration Statement whenever the seller
or sellers of such securities shall desire to sell or otherwise
dispose of such securities;
(c) furnish to any selling security holders such number
of copies of a summary prospectus or other prospectus, including a
preliminary prospectus, in conformity with the requirements of the
Securities Act, and such other documents, as such selling security
holders may reasonably request;
(d) use its best efforts to register or qualify the
securities covered by such Registration Statement under such other
securities or blue sky laws of such jurisdictions within the United
States and Puerto Rico as each holder of such securities shall
request, and do such other reasonable acts and things as may be
required of it to enable such holder to consummate the disposition in
such jurisdiction of the securities covered by such Registration
Statement;
(e) unless waived in writing by each Holder of a Warrant
or Warrant Stock being included in such registration, use its best
efforts to obtain from either a nationally recognized underwriter or
investment banker or an underwriter or investment banker reasonably
acceptable to such Holder a firm commitment (pursuant to an
underwriting agreement in customary form) to underwrite the public
offering of the securities covered by such Registration Statement;
(f) furnish, at the request of any holder requesting
registration of Warrants and Warrant Stock pursuant to Section 8.3 or
8.4, on the date that such Warrants and shares of Warrant Stock are
delivered to the underwriters for sale pursuant to such registration
or, if such Warrant or Warrant Stock is not being sold through
underwriters, on the date that the Registration Statement with respect
to such Warrants and shares of Warrant Stock becomes effective (1) a
copy of an opinion, dated such date, of the independent counsel
representing the Company for the purposes of such registration,
addressed to the
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underwriters, if any, and to the holders making such request, stating
that such Registration Statement has become effective under the
Securities Act and that (i) to the best knowledge of such counsel, no
stop order suspending the effectiveness thereof has been issued and no
proceedings for that purpose have been instituted or are pending or
contemplated under the Securities Act, (ii) the Registration
Statement, the related prospectus, and each amendment or supplement
thereto, comply as to form in all material respects with the
requirements of the Securities Act and the applicable rules and
regulations of the Commission thereunder (except that such counsel
need express no opinion as to financial statements and data contained
therein), (iii) the descriptions in the Registration Statement or the
prospectus, or any amendment or supplement thereto, of all legal
matters and contracts and other legal documents or instruments are
accurate and fairly present the information required to be shown, and
(iv) such counsel does not know of any legal or governmental
proceedings, pending or contemplated, required to be described in the
Registration Statement or prospectus, or any amendment or supplement
thereto, which are not described as required, nor of any contracts or
documents or instruments of a character required to be described in
the Registration Statement or prospectus, or any amendment or
supplement thereto, or to be filed as exhibits to the Registration
Statement which are not described and filed or incorporated by
reference as required; such counsel shall also confirm that he has no
reason to believe that either the Registration Statement or the
prospectus, or any amendment or supplement thereto (other than
financial material and data as to which such counsel need make no
statement) contains any untrue statement of a material fact or omits
to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances in which
made, not misleading; and (2) a letter dated such date, from the
independent certified public accountants of the Company, addressed to
the underwriters, if any, and to the holders making such request and,
if such accountants refuse to deliver such letter to such holders,
then to the Company with an acknowledgment that the selling
shareholders are entitled to rely thereon, stating that they are
independent certified public accountants within the meaning of the
Securities Act and that, in the opinion of such accountants, the
financial statements and other financial data of the Company included
in the Registration Statement or the prospectus, or any amendment or
supplement thereto, comply as to form in all material respects with
the applicable accounting requirements of the Securities Act. Such
opinion of counsel shall additionally cover such other legal matters
with respect to Warrants and Warrant Stock and the registration in
respect of which such opinion is being given
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as the holders holding a majority of the Warrants and Warrant Stock so
registered may reasonably request. Such letter from independent
certified public accountants shall additionally cover such other
financial matters (including information as to the period ending not
more than five Business Days prior to the date of such letter) with
respect to the registration in respect of which such letter is being
given as the holders holding a majority of the Warrants and Warrant
Stock being so registered may reasonably request;
(g) enter into customary agreements (including an
underwriting agreement in customary form) and take such other actions
as are reasonably required in order to expedite or facilitate the
disposition of such registrable securities;
(h) otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make available
to its security holders, as soon as reasonably practicable, but not
later than eighteen (18) months after the effective date of the
Registration Statement, an earnings statement covering a period of at
least twelve (12) months beginning after the effective date of such
Registration Statement, which earnings statement shall satisfy the
provisions of Section 11(a) of the Securities Act; and
(i) give the holders of Warrants and the holders of
Restricted Common Stock on whose behalf securities are to be so
registered and their underwriters, if any, and their respective
counsel and accountants the opportunity to participate in the
preparation of such registration statement, each prospectus included
therein or filed with the Commission, and each amendment thereof and
supplement thereto, and give each of them such access to its books and
records and facilities, and such opportunities to discuss the business
of the Company with its officers and the independent public
accountants who have certified its financial statements, as shall be
necessary, in the opinion of such holders, such underwriters (or their
counsel), such counsel or such accountants (or their counsel), to
conduct a reasonable investigation within the meaning of the
Securities Act.
It shall be a condition precedent to the obligation of the
Company to take any action pursuant to this Section 8 in respect of the
securities which are to be registered at the request of any holder of Warrants
or Warrant Stock that such holder shall furnish to the Company such information
regarding the securities held by such holder and the intended method of
disposition thereof as the Company shall reasonably request and
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as shall be required in connection with the action taken by the Company.
8.6 Expenses; Limitations on Registration. All expenses incurred
in complying with Section 8, including, without limitation, all registration
and filing fees (including all expenses incident to filing with the NASD,
printing expenses, fees and disbursements of counsel and auditors for the
Company, the reasonable fees and expenses of one counsel for the selling
security holders (selected by those holding a majority of the shares or
Warrants being registered), expenses of any special audits incident to or
required by any such registration and expenses of complying with the securities
or blue sky laws of any jurisdictions pursuant to Section 8.5(d), shall be paid
by the Company, except that except as provided above with respect to expenses
of complying with Section 8.5(d), the Company shall not be liable for any fees,
discounts or commissions to any underwriter or any fees or disbursements of
counsel for any underwriter in respect of the securities sold by such holder of
Warrants or Warrant Stock.
8.7 Indemnification. (a) In the event of any registration of any
of the Warrants and Warrant Stock under the Securities Act pursuant to this
Section 8, the Company shall indemnify and hold harmless the holder of such
Warrants and Warrant Stock, such holder's directors and officers, and each
other Person (including each underwriter) who participated in the offering of
such Warrants and Warrant Stock and each other Person, if any, who controls
such holder or such participating Person within the meaning of the Securities
Act, against any losses, claims, damages or liabilities, joint or several, to
which such holder or any such director or officer or participating Person or
controlling Person may become subject under the Securities Act or any other
statute or at common law, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon (i)
any alleged untrue statement of any material fact contained, on the effective
date thereof, in any Registration Statement under which such securities were
registered under the Securities Act, any preliminary prospectus or final
prospectus contained therein, or any amendment or supplement thereto, or (ii)
any alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, and shall
reimburse such holder or such director, officer or participating Person or
controlling Person for any legal or any other expenses reasonably incurred by
such holder or such director, officer or participating Person or controlling
Person in connection with investigating or defending any such loss, claim,
damage, liability or action; provided, however, that the Company shall not be
liable in any such case to the extent that any such loss, claim, damage or
liability arises out of or is based upon any alleged untrue statement or
alleged omission made in such
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Registration Statement, preliminary prospectus, prospectus or amendment or
supplement in reliance solely upon and in conformity with written information
furnished to the Company by such holder specifically for use therein. Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of such holder or such director, officer or participating
Person or controlling Person, and shall survive the transfer of such securities
by such holder.
(b) Each holder of any Warrants and Warrant Stock, by
acceptance thereof, agrees to indemnify and hold harmless the Company, its
directors and officers and each other Person, if any, who controls the Company
within the meaning of the Securities Act against any losses, claims, damages or
liabilities, joint or several, to which the Company or any such director or
officer or any such Person may become subject under the Securities Act or any
other statute or at common law, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon
information in writing provided to the Company by such holder of such Warrants
and Warrant Stock contained, on the effective date thereof, in any Registration
Statement under which securities were registered under the Securities Act at
the request of such holder, any preliminary prospectus or final prospectus
contained therein, or any amendment or supplement thereto; provided, however,
that such Holder's obligation under this Section 8.7(b) to indemnify and hold
harmless the Company shall in no event exceed the damage attributable solely to
the inclusion of such written information in such Registration Statement,
preliminary prospectus, final prospectus, or amendment or supplement suffered
by the Person or Persons whose claims gave rise to such losses, claims, damages
or liabilities, and shall in no event exceed the proceeds received by such
person from the proceeds of shares, Warrants or Warrant Stock sold pursuant to
such Registration Statements.
(c) If the indemnification provided for in this Section 8
from the indemnifying party is unavailable to an indemnified party hereunder in
respect of any losses, claims, damages, liabilities or expenses referred to
herein, then the indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages, liabilities or expenses in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party and indemnified parties in connection with the actions which resulted in
such losses, claims, damages, liabilities or expenses, as well as any other
relevant equitable considerations. The relative fault of such indemnifying
party and indemnified parties shall be determined by reference to, among other
things, whether any action in question, including any untrue or alleged untrue
statement of a material fact or omission or alleged omission to state a
material fact, has been made by, or relates to
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information supplied by, such indemnifying party or indemnified parties, and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such action. The amount paid or payable by a party under
this Section 8 as a result of the losses, claims, damages, liabilities and
expenses referred to above shall be deemed to include any legal or other fees
or expenses reasonably incurred by such party in connection with any
investigation or proceeding.
The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 8.7(c) were determined by
pro rata allocation or by any other method of allocation which does not take
account of the equitable considerations referred to in the immediately
preceding paragraph. No Person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any Person who was not guilty of such fraudulent
misrepresentation.
8.8 Termination of Restrictions. Notwithstanding the foregoing
provisions of Section 8, the restrictions imposed by this Section upon the
transferability of the Warrants, the Warrant Stock and the Restricted Common
Stock (or Common Stock issuable upon the exercise of the Warrants) and the
legend requirements of Section 8.1 shall terminate as to any particular Warrant
or share of Warrant Stock or Restricted Common Stock (or Common Stock issuable
upon the exercise of the Warrants) (i) when and so long as such security shall
have been effectively registered under the Securities Act and disposed of
pursuant thereto or (ii) when the Company shall have received an opinion of
counsel reasonably satisfactory to it that such legend is not required in order
to ensure compliance with the Securities Act. Whenever the restrictions
imposed by Section 8 shall terminate as to this Warrant, as hereinabove
provided, the Holder hereof shall be entitled to receive from the Company, at
the expense of the Company, a new Warrant bearing the following legend in place
of the restrictive legend set forth hereon:
"THE RESTRICTIONS ON TRANSFERABILITY OF THE WITHIN WARRANT
CONTAINED IN SECTION 8 HEREOF TERMINATED ON ____________, 19 __, AND
ARE OF NO FURTHER FORCE OR EFFECT."
All Warrants thereafter issued upon registration of transfer, division or
combination of, or in substitution for, any Warrant or Warrants entitled to
bear such legend shall have a similar legend endorsed thereon. Whenever the
restrictions imposed by this Section shall terminate as to any share of
Restricted Common Stock, as hereinabove provided, the holder thereof shall be
entitled to receive from the Company, at the Company's expense, a new
certificate representing such Common Stock not bearing the restrictive legend
set forth in Section 8.1(a).
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8.9 Listing on Securities Exchange. If the Company shall list any
shares of Common Stock on any securities exchange, it will, at its expense,
list thereon, maintain and, when necessary, increase such listing of, all
shares of Common Stock issued or, to the extent permissible under the
applicable securities exchange rules, issuable upon the exercise of this
Warrant so long as any shares of Common Stock shall be so listed during any
such Exercise Period.
8.10 Certain Limitations on Registration Rights. Notwithstanding
the other provisions of Section 8:
(i) the Company shall not be obligated to register the
Warrants and the Warrant Stock of any holder if (x) in the opinion of
counsel to the Company reasonably satisfactory to the holder and its
counsel (or, if the holder has engaged an investment banking firm, to
such investment banking firm and its counsel), the sale or other
disposition of such holder's Warrants and Warrant Stock, in the manner
proposed by such holder (or by such investment banking firm), may be
effected without registering such Warrants and Warrant Stock under the
Securities Act, and (y) the failure of the Company to register such
Warrants and Warrant Stock will not result in a reduction in the net
proceeds to be received by such holder in connection with such sale or
other disposition; and
(ii) The Company shall not be obligated to register the
Warrants and Warrant Stock of any holder pursuant to Section 8.3, if
the Company has had a registration statement, under which such holder
had a right to have its Warrants and Warrant Stock included pursuant
to Sections 8.3 or 8.4, declared effective within one year prior to
the date of the request pursuant to Section 8.3; provided, however,
that if any holder elected to have its Warrants and Warrant
Stock included under such registration statement but some or all of
such Warrants and/or shares were excluded pursuant to the second to
last sentence of Section 8.4, then such one-year period shall be
reduced to six months.
8.11 Selection of Managing Underwriters. The managing underwriter
or underwriters for any offering of Warrants and Warrant Stock to be registered
pursuant to Section 8.3 shall be selected by the holders of a majority of the
shares being so registered (other than any Warrants and shares being registered
pursuant to Section 8.4) and shall be reasonably acceptable to the Company.
9. SUPPLYING INFORMATION
The Company shall cooperate with each Holder of a Warrant and
each holder of Restricted Common Stock in supplying
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such information as may be reasonably necessary for such holder to complete and
file any information reporting forms presently or hereafter required by the
Commission as a condition to the availability of an exemption from the
Securities Act for the sale of any Warrant or Restricted Common Stock.
10. LOSS OR MUTILATION
Upon receipt by the Company from any Holder of evidence
reasonably satisfactory to it of the ownership of and the loss, theft,
destruction or mutilation of this Warrant and (in the case of theft or
destruction) of indemnity reasonably satisfactory to it (it being understood
that the written agreement of GE Capital shall be sufficient indemnity) and in
case of mutilation upon surrender and cancellation hereof, the Company will
execute and deliver in lieu hereof a new Warrant of like tenor to such Holder.
11. WARRANT AGREEMENT
The Company agrees that it will, as promptly as possible after
receipt of the written request of the holders of Warrants for the purchase of
at least 25% of the shares of Warrant Stock at the time purchasable under all
outstanding Warrants, execute and deliver a Warrant Agreement (hereinafter
called the "Warrant Agreement") with a bank or trust company in New York, New
York, authorized to exercise corporate trust powers (hereinafter called the
"Warrant Agent") satisfactory to such holders, incorporating the terms and
conditions of the Warrants and providing for the issuance under the Warrant
Agreement of Warrants in readily marketable form (hereinafter called the "New
Warrants") in exchange for Warrants in the form hereof. The Warrant Agreement
shall be executed and delivered, and Warrants shall be so exchanged for New
Warrants, upon the following terms:
A. The New Warrants shall be entitled to and subject to
all the substantive provisions of the Warrants, and shall be issuable
only (i) against surrender of Warrants permitting the purchase of an
equal number of shares of Common Stock or (ii) in cases of transfer,
division or combination of New Warrants or lost, mutilated or stolen
New Warrants.
B. The Warrant Agreement shall contain appropriate
provisions setting forth the substantive provisions of the Warrants
and other provisions not inconsistent with the Warrants which are
applicable to the issuance of public warrants under warrant agreements
generally, except that in lieu of mailing notices to each holder of
New Warrants as provided in Section 5, the Company shall mail such
notices to Warrant Agent. The Warrant Agreement shall be in form
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satisfactory to the Company and such holders and its and their
respective counsel.
C. Upon execution and delivery of the Warrant Agreement
the Company will promptly send notice thereof to all holders of
Warrants in the manner set forth herein, in order to advise all such
holders of their right to surrender Warrants in exchange for New
Warrants.
D. Upon surrender of any Warrants then outstanding, the
Company will deliver to each holder of Warrants so surrendered, in
exchange therefor, New Warrants permitting the purchase of a number of
shares of Common Stock equal to that permitted to be purchased
pursuant to the Warrants so surrendered.
E. The Warrant Agreement and all New Warrants issued
thereunder and delivered as provided above shall, in the opinion of
counsel for such holders, be duly authorized, executed and delivered
by the Company and shall be valid and binding obligations of the
Company complying with the provisions hereof, and the New Warrants
shall, in the opinion of such counsel, be entitled to the benefits of
the Warrant Agreement.
F. The Company will bear all expenses, including
reasonable fees and expenses of counsel for such holders, in
connection with the preparation, execution and delivery of the Warrant
Agreement and New Warrants, including payment of all stamp and other
taxes other than taxes imposed by reason of transfer of title.
12. OFFICE OF THE COMPANY
As long as any of the Warrants remain outstanding, the Company
shall maintain an office or agency (which may be the principal executive
offices of the Company) where the Warrants may be presented for exercise,
registration of transfer, division or combination as provided in this Warrant.
The Company shall notify each Holder in writing prior to any change of the
address of the office at which the Warrants may be presented.
13. FINANCIAL AND BUSINESS INFORMATION
13.1 Information. Except during any period when the Company is a
public company, it will deliver to each Holder, as soon as practicable after
the end of each month, and in any event within thirty (30) days thereafter, and
after the end of each quarter and in any event within forty-five (45) days
thereafter, one copy of an unaudited consolidated balance sheet, statement of
income and statement of cash flow of the Company and its Subsidiaries as of the
last day of and for such period and year to date setting
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forth in each case in comparative form the figures for the corresponding
periods in the previous fiscal year. Such financial statements shall be
prepared by the Company in accordance with GAAP and shall be accompanied by the
certification of the Company's chief executive officer or chief financial
officer that such financial statements are complete and correct and present
fairly the consolidated financial position, results of operations and cash flow
of the Company and its Subsidiaries as at the end of such period and for such
year-to-date period, as the case may be.
For purposes of this Section 13, the term "Public Company"
shall mean a company (i) that is subject to the reporting requirements of
Section 15(d) of the Exchange Act, or (ii) any of whose securities are
registered pursuant to Section 12(b) or 12(g) of the Exchange Act.
13.2 Annual Information. (a) Except during any period when the
Company is a Public Company (as hereinafter defined), it will deliver to each
Holder as soon as practicable after the end of each fiscal year of the Company,
and in any event within ninety (90) days thereafter, one copy of:
(i) an audited consolidated balance sheet of the
Company and its Subsidiaries as at the end of such year, and
(ii) audited consolidated statements of income and retained
earnings and cash flow of the Company and its Subsidiaries for such
year;
setting forth in each case in comparative form the figures for the
corresponding periods in the previous fiscal year; all prepared in accordance
with GAAP, and which audited financial statements shall be accompanied by an
opinion thereon of the independent certified public accountants regularly
retained by the Company, or any other firm of independent certified public
accountants of recognized national standing selected by the Company.
In addition, and whether or not the Company is a Public
Company, the Company shall deliver to each Holder as soon as practicable after
the end of each fiscal year of the Company, and in any event within ninety (90)
days thereafter a report of such independent certified public accountants
confirming, or describing the agreed upon procedures applied to the Company's
schedules computing, any adjustment made pursuant to Section 4 during such
year.
13.3 Filings. The Company will file on or before the required date
all required regular or periodic reports (pursuant to the Exchange Act) with
the Commission and will deliver to each Holder promptly upon their becoming
available one copy of each
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report, notice or proxy statement sent by the Company to its stockholders
generally, and of each regular or periodic report (pursuant to the Exchange
Act) and any Registration Statement, prospectus or written communication (other
than transmittal letters) pursuant to the Securities Act, filed by the Company
with (i) the Commission or (ii) any securities exchange on which shares of
Common Stock are listed.
14. APPRAISAL
The determination of the Appraised Value per share of Common
Stock shall be made by an investment banking firm of nationally recognized
standing selected by the Company and acceptable to the Majority Holders. If
the investment banking firm selected by the Company is not acceptable to the
Majority Holders and the Company and the Majority Holders cannot agree on a
mutually acceptable investment banking firm, then the Majority Holders and the
Company shall each choose one such investment banking firm and the respective
chosen firms shall agree on another investment banking firm which shall make
the determination. The Company shall retain, at its sole cost, such investment
banking firm as may be necessary for the determination of Appraised Value
required by the terms of this Warrant.
15. LIMITATION OF LIABILITY
No provision hereof, in the absence of affirmative action by
any Holder to purchase shares of Common Stock, and no enumeration herein of the
rights or privileges of any Holder hereof, shall give rise to any liability of
such Holder for the purchase price of any Common Stock or as a stockholder of
the Company, whether such liability is asserted by the Company or by creditors
of the Company.
16. MISCELLANEOUS
16.1 Nonwaiver and Expenses. No course of dealing or any delay or
failure to exercise any right hereunder on the part of any party shall operate
as a waiver of such right or otherwise prejudice such party's rights, powers or
remedies. If the Company fails to make, when due, any payments provided for
hereunder, or fails to comply with any other provision of this Warrant, the
Company shall pay to each Holder such amounts as shall be sufficient to cover
any costs and expenses including, but not limited to, reasonable attorneys'
fees, including those of appellate proceedings, incurred by such Holder in
collecting any amounts due pursuant hereto or in otherwise enforcing any of its
rights, powers or remedies hereunder.
16.2 Notice Generally. Any notice, demand, request, consent,
approval, declaration, delivery or other communication hereunder to be made
pursuant to the provisions of this Warrant
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shall be sufficiently given or made if in writing and either delivered (i) in
person (including via courier, messenger or overnight delivery service) with
receipt acknowledged, (ii) by facsimile transmission, with receipt
electronically confirmed during normal business hours of recipient, and that is
confirmed by sending, no later than one (1) Business Day following such
transmission, a copy of such facsimile, by registered or certified mail, return
receipt requested, postage prepaid, or (iii) by registered or certified mail,
return receipt requested, postage prepaid, addressed as follows:
(a) If to any Holder or holder of Warrant Stock, at its
last known address or facsimile transmission number appearing on the
books of the Company maintained for such purpose, which for GE Capital
Corporation initially shall be:
General Electric Capital Corporation
190 S. LaSalle Street
Suite 1200
Chicago, IL 60603
Attn: Vice President Operations
(b) If to the Company at
Specialty Equipment Companies, Inc.
1245 Corporate Blvd.,
Suite 401,
Aurora, Illinois 60504
Attention: Chief Executive Officer
or at such other address as may be substituted by notice given as herein
provided. The giving of any notice required hereunder may be waived in writing
by the party entitled to receive such notice. Every notice, demand, request,
consent, approval, declaration, delivery or other communication hereunder shall
be deemed to have been duly given or served on the date on which personally
delivered, with receipt acknowledged or sent by facsimile with receipt
electronically confirmed during normal business hours of recipient. Failure or
delay in delivering copies of any notice, demand, request, approval,
declaration, delivery or other communication to any person designated above to
receive a copy shall in no way adversely affect the effectiveness of such
notice, demand, request, approval, declaration, delivery or other
communication.
16.3 Indemnification. In addition to the indemnities provided in
Section 8.7 (as to the subject matter of which the indemnifications, including
limitations, therein, shall control), the Company agrees to indemnify and hold
harmless each Holder, its officers, directors, employees, agents, and
attorneys, from and against any liabilities, obligations, losses, damages,
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penalties, actions, judgments, suits, claims, costs, attorneys' fees, expenses
and disbursements of any kind which may be imposed upon, incurred by or
asserted against each Holder relating to or arising out of (i) each Holder's
exercise of this Warrant and/or ownership of any shares of Warrant Stock issued
in consequence thereof, or (ii) any litigation to which each Holder is made a
party in its capacity as a stockholder or warrant holder of the Company;
provided, however, that the Company will not be liable hereunder to the extent
that any liabilities, obligation, losses, damages, penalties, actions,
judgments, suits, claims, costs, attorneys' fees, expenses or disbursements are
found in a final nonappealable judgment by a court to have resulted from either
(i) each Holder's gross negligence or willful misconduct, or (ii) actions or
omissions taken or not taken by each Holder in any capacity other than as a
stockholder or warrant holder of the Company.
16.4 Remedies. Each holder of Warrants or Warrant Stock, in
addition to being entitled to exercise all rights granted by law, including
recovery of damages, will be entitled to specific performance of its rights
under Section 8 of this Warrant. The Company agrees that monetary damages
would not be adequate compensation for any loss incurred by reason of a breach
by it of the provisions of Section 8 of this Warrant and hereby agrees to waive
the defense in any action for specific performance that a remedy at law would
be adequate.
16.5 Successors and Assigns. Subject to the provisions of Sections
3.1 and 9, this Warrant and the rights evidenced hereby shall inure to the
benefit of and be binding upon the successors of the Company and the successors
and assigns of each Holder. The provisions of this Warrant are intended to be
for the benefit of all Holders from time to time of this Warrant, and shall be
enforceable by any such Holder.
16.6 Amendment. This Warrant and all other Warrants may be
modified or amended or the provisions hereof waived with the written consent of
the Company and the Majority Holders, provided that no such Warrant may be
modified or amended to reduce the number of shares of Common Stock for which
such Warrant is exercisable or to increase the price at which such shares may
be purchased upon exercise of such Warrant (before giving effect to any
adjustment as provided therein) without the prior written consent of the Holder
thereof.
16.7 Severability. Wherever possible, each provision of this
Warrant shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Warrant shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Warrant.
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16.8 Headings. The headings used in this Warrant are for the
convenience of reference only and shall not, for any purpose, be deemed a part
of this Warrant.
16.9 Governing Law; Waiver of Jury Trial; Venue. THE TERMS OF THIS
WARRANT SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF ILLINOIS (EXCLUSIVE OF ANY RULES AS TO CONFLICT
OF LAWS) AND THE LAWS OF THE UNITED STATES APPLICABLE THEREIN. THE COMPANY AND
EACH HOLDER HEREOF EACH WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION OR
PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS OR REMEDIES HEREUNDER, UNDER THE
LOAN AGREEMENT OR UNDER THE OTHER LOAN DOCUMENTS OR RELATING TO EACH OF THE
FOREGOING. AS PART OF THE CONSIDERATION FOR NEW VALUE THIS DAY RECEIVED, THE
COMPANY HEREBY CONSENTS TO THE JURISDICTION OF ANY STATE OR FEDERAL COURT
LOCATED WITHIN COOK COUNTY, ILLINOIS, AND WAIVES PERSONAL SERVICE OF ANY AND
ALL PROCESS UPON THE COMPANY, AND CONSENTS THAT ALL SUCH SERVICE OF PROCESS BE
MADE BY REGISTERED MAIL DIRECTED TO THE COMPANY AT THE ADDRESS PROVIDED IN
SECTION 16.2 ABOVE AND SERVICE SO MADE SHALL BE DEEMED TO BE COMPLETED THREE
(3) BUSINESS DAYS AFTER THE SAME SHALL HAVE BEEN DEPOSITED IN THE UNITED STATES
MAILS, POSTAGE PREPAID. NOTWITHSTANDING THE FOREGOING, THE COMPANY HEREBY
IRREVOCABLY APPOINTS CT CORPORATION SYSTEM AS THE COMPANY'S AGENT FOR THE
PURPOSE OF ACCEPTING THE SERVICE OF ANY PROCESS WITHIN THE STATE OF ILLINOIS.
THE COMPANY WAIVES ANY OBJECTION TO VENUE OF ANY ACTION INSTITUTED HEREUNDER
AND CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED
APPROPRIATE BY THE COURT.
IN WITNESS WHEREOF, the Company has caused this Warrant to be
duly executed and its corporate seal to be impressed hereon and attested by its
Secretary or an Assistant Secretary.
Issued on March 31, 1992
Reregistered as of this 27th day of December, 1996
Specialty Equipment Companies, Inc.
By: William E. Dotterweich
-----------------------------
Name: William E. Dotterweich
Title: Chief Executive Officer
Attest:
Donald K. McKay
- --------------------------
Name: Donald K. McKay
Title: Secretary
-37-
<PAGE> 41
EXHIBIT A
SUBSCRIPTION FORM
[To be executed only upon exercise of Warrant]
The undersigned registered owner of the attached Warrant
irrevocably exercises such Warrant for the purchase of _________ Shares of
Common Stock of _________________ and herewith makes payment therefor, all at
the price and on the terms and conditions specified in such Warrant and
requests that certificates for the shares of Common Stock hereby purchased (and
any securities or other property issuable upon such exercise) be issued in the
name of and delivered to _________________ whose address is _____________ and,
if such shares of Common Stock shall not include all of the shares of Common
Stock issuable as provided in such Warrant, that a new Warrant of like tenor
and date for the balance of the shares of Common Stock issuable hereunder be
delivered to the undersigned.
_______________________________________
(Name of Registered Owner)
_______________________________________
(Signature of Registered Owner)
_______________________________________
(Street Address)
_______________________________________
(City) (State) (Zip Code)
NOTICE: The signature on this subscription must correspond with the name as
written upon the face of the attached Warrant in every particular,
without alteration or enlargement or any change whatsoever.
-38-
<PAGE> 42
EXHIBIT B
ASSIGNMENT FORM
FOR VALUE RECEIVED the undersigned registered owner of the
attached Warrant hereby sells, assigns and transfers unto the Assignee named
below all of the rights of the undersigned under such Warrant, with respect to
the number of shares of Common Stock set forth below:
Name and Address of Assignee No. of Shares of Common Stock
and does hereby irrevocably constitute and appoint ____________
attorney-in-fact to register such transfer on the books of _______________
maintained for the purpose, with full power of substitution in the premises.
Dated:__________________ Print Name:__________________________
Signature:___________________________
Witness:_____________________________
NOTICE: The signature on this assignment must correspond with the name as
written upon the face of the attached Warrant in every particular,
without alteration or enlargement or any change whatsoever.
-39-
<PAGE> 1
EXHIBIT 12.1
STATEMENT RE:
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
($ IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM
-----------
MARCH 31,
FEB. 1 TO 1992 TO
MARCH 30, JAN.31 YEARS ENDED JANUARY 31,
1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Earnings:
Earnings (loss) from
operations before
income taxes $(2,498) $(53,607) $(51,336) $(41,308) $18,369 $41,812
Interest expense(1) 3,223 14,180 17,117 22,997 21,010 18,714
Amortization of
deferred financing
costs 92 60 783 1,828 1,670 1,479
------- -------- -------- -------- ------- -------
Total $ 817 $(39,367) $(33,436) $(16,483) $41,049 $62,005
======= ======== ======== ======== ======= =======
Fixed charges:
Interest expense
(1) 3,223 14,180 17,117 22,997 21,010 18,714
Amortization of
deferred financing
costs 92 60 783 1,828 1,670 1,479
------- -------- -------- -------- ------- -------
Total $ 3,315 $ 14,240 $ 17,900 $ 24,825 $22,680 $20,193
======= ======== ======== ======== ======= =======
Ratio of earnings to
fixed charges (2) (2) (2) (2) 1.81x 3.07x
</TABLE>
- ---------------------
(1) Interest expense includes interest income, but excludes amortization of
deferred financing costs.
(2) Earnings were insufficient to cover fixed charges by $2.5 million, $53.6
million, $58.4 million, and $41.3 million for the two month period ended
March 30, 1992 and the 10 month period ended January 31, 1993
and for the years ended January 31, 1994 and 1995, respectively.
(3) As a result of the Company's emergence from Chapter 11 bankruptcy
proceedings the Company adopted "fresh start" accounting on March 31,
1992. As a result of the application of fresh start reporting, the
financial condition and results of operations of the Company for the dates
and periods on or subsequent to March 31, 1992 are not comparable to those
prior to March 31, 1992.
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF SPECIALTY EQUIPMENT COMPANIES, INC.
<TABLE>
<CAPTION>
Jurisdiction of
Incorporation or
Subsidiary Organization
- ---------- ------------
<S> <C>
Bloomfield Industries Canada Limited........................... Ontario, Canada
FM Manufacturing, Inc.......................................... Delaware
Specialty Equipment Foreign Sales Corporation.................. Delaware
Taylor-Chicago Corp............................................ Illinois
Taylor Freezer (Cyprus) Limited................................ Cyprus
Taylor Freezer International S.r.l............................. Rome, Italy
</TABLE>
<PAGE> 1
Exhibit 23.1
The Board of Directors
Specialty Equipment Companies, Inc.
We consent to incorporation by reference in the registration statement (No.
33-74604) on Form S-8 of Specialty Equipment Companies, Inc. of our report
dated March 17, 1997, relating to the consolidated balance sheets of Specialty
Equipment Companies, Inc. and its subsidiaries as of January 31, 1996 and 1997,
and the related consolidated statements of operations, stockholders' equity
(deficit), and cash flows and related schedule for each of the years in the
three-year period ended January 31, 1997, which report appears in the January
31, 1997 annual report on Form 10-K of Specialty Equipment Companies, Inc.
KPMG PEAT MARWICK LLP
Chicago, Illinois
March 17, 1997
<PAGE> 1
Exhibit 24.1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the individual whose signature
appears below hereby appoints Daniel B. Greenwood, William E. Dotterweich and
Donald K. McKay, and each of them, any one of whom may act without the joinder
of the other, as his attorney-in-fact with full power of substitution and
resubstitution to sign and file all amendments and post-effective amendments
to, the Annual Report on Form 10-K ("Form 10-K") to be filed under the
Securities and Exchange Act of 1934 by Specialty Equipment Companies, Inc., a
Delaware corporation, on March 27, 1997, and any and all other documents that
may be required in connection with the filing of the Form 10-K, which
amendments may make such changes and additions to the Form 10-K as such
attorney-in-fact may deem necessary or appropriate.
Kevin E. Glazer
--------------------
Kevin E. Glazer
Dated: March 19th, 1997
<PAGE> 2
Exhibit 24.1
POWER OF ATTORNEY
KNOW BY ALL MEN BY THESE PRESENTS, that the individual whose signature
appears below hereby appoints William E. Dotterweich and Donald K. McKay, and
each of them, any one of whom may act without the joinder of the other, as his
attorney-in-fact with full power of substitution and resubstitution to sign on
his behalf in any and all capacities, and to sign and file all amendments and
post-effective amendments to, the Annual Report on Form 10-K ("Form 10-K") to
be filed under the Securities and Exchange Act of 1934 by Specialty Equipment
Companies, Inc., a Delaware corporation, on March 27, 1997, and any and all
other documents that may be required in connection with the filing of the Form
10-K, which amendments may make such changes and additions to the Form 10-K as
such attorney-in-fact may deem necessary or appropriate.
Daniel B. Greenwood
------------------------
Daniel B. Greenwood
Dated: March 19, 1997
<PAGE> 3
Exhibit 24.1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the individual whose signature
appears below hereby appoints Daniel B. Greenwood, William E. Dotterweich and
Donald K. McKay, and each of them, any one of whom may act without the joinder
of the other, as his attorney-in-fact with full power of substitution and
resubstitution to sign on his behalf in any and all capacities, and to sign and
file all amendments and post-effective amendments to, the Annual Report on Form
10-K ("Form 10-K") to be filed under the Securities and Exchange Act of 1934 by
Specialty Equipment Companies, Inc., a Delaware corporation, on Match 27, 1997,
and any and all other documents that may be required in connection with the
filing of the Form 10-K, which amendments may make such changes and additions
to the Form 10-K as such attorney-in-fact may deem necessary or appropriate.
Richard Kent
---------------------
Richard Kent
Dated: March 19, 1997
<PAGE> 4
Exhibit 24.1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the individual whose signature
appears below hereby appoints Daniel B. Greenwood, William E. Dotterweich and
Donald K. McKay, and each of them, any one of whom may act without the joinder
of the other, as his attorney-in-fact with full power of substitution and
resubstitution to sign on his behalf in any and all capacities, and to sign and
file all amendments and post-effective amendments to, the Annual Report on
Form 10-K ("Form 10-K") to be filed under the Securities and Exchange Act of
1934 by Specialty Equipment Companies, Inc., a Delaware corporation, on March
27, 1997, and any and all other documents that may be required in connection
with the filing of the Form 10-K, which amendments may make such changes and
additions to the Form 10-K as such attorney-in-fact may deem necessary or
appropriate.
/s/ Charles E. Hutchinson
------------------------
Charles E. Hutchinson
Dated: March 19, 1997
<PAGE> 5
Exhibit 24.1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the individual whose signature
appears below hereby appoints Daniel B. Greenwood and Donald K. McKay, and
each of them, any one of whom may act without the joinder of the other, as
his attorney-in-fact with full power of substitution and resubstitution to sign
on his behalf in any and all capacities, and to sign and file all amendments
and post-effective amendments to, the Annual Report on Form 10-K ("Form 10-K")
to be filed under the Securities and Exchange Act of 1934 by Specialty
Equipment Companies, Inc., a Delaware corporation, on March 27, 1997, and any
and all other documents that may be required in connection with the filing of
the Form 10-K, which amendments may make such changes and additions to the Form
10-K as such attorney-in-fact may deem necessary or appropriate.
/s/ William E. Dotterweich
-------------------------
William E. Dotterweich
Dated: March 19, 1997
<PAGE> 6
Exhibit 24.1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the individual whose signature
appears below hereby appoints Daniel B. Greenwood, William E. Dotterweich and
Donald K. McKay, and each of them, any one of whom may act without the joinder
of the other, as his attorney-in-fact with full power of substitution and
resubstitution to sign on his behalf in any and all capacities, and to sign and
file all amendments and post-effective amendments to, the Annual Report on Form
10-K ("Form 10-K") to be filed under the Securities and Exchange Act of 1934 by
Specialty Equipment Companies, Inc., a Delaware corporation, on March 27, 1997,
and any and all other documents that may be required in connection with the
filing of the Form 10-K, which amendments may make such changes and additions
to the Form 10-K as such attorney-in-fact may deem necessary or appropriate.
/s/ Barry L. MacLean
-----------------------
Barry L. MacLean
Dated: March 20, 1997
<PAGE> 7
Exhibit 24.1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the individual whose signature
appears below hereby appoints Daniel B. Greenwood, William E. Dotterweich and
Donald K. McKay, and each of them, any one of whom may act without the joinder
of the other, as his attorney-in-fact with full power of substitution and
resubstitution to sign on his behalf in any and all capacities, and to sign and
file all amendments and post-effective amendments to, the Annual Report on
Form 10-K ("Form 10-K") to be filed under the Securities and Exchange Act of
1934 by Specialty Equipment Companies, Inc., a Delaware corporation, on March
27, 1997, and any and all other documents that may be required in connection
with the filing of the Form 10-K, which amendments may make such changes and
additions to the Form 10-K as such attorney-in-fact may deem necessary or
appropriate.
/s/ Malcolm I. Glazer
------------------------
Malcolm I. Glazer
Dated: March 21, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-START> FEB-01-1996
<PERIOD-END> JAN-31-1997
<CASH> 7,787
<SECURITIES> 0
<RECEIVABLES> 58,145
<ALLOWANCES> (4,659)
<INVENTORY> 55,311
<CURRENT-ASSETS> 132,411
<PP&E> 53,894
<DEPRECIATION> (19,677)
<TOTAL-ASSETS> 176,916
<CURRENT-LIABILITIES> 90,303
<BONDS> 155,440
0
0
<COMMON> 180
<OTHER-SE> (71,411)
<TOTAL-LIABILITY-AND-EQUITY> 176,916
<SALES> 401,230
<TOTAL-REVENUES> 401,230
<CGS> 279,120
<TOTAL-COSTS> 279,120
<OTHER-EXPENSES> 61,387
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18,714
<INCOME-PRETAX> 42,009
<INCOME-TAX> 7,887
<INCOME-CONTINUING> 34,122
<DISCONTINUED> 0
<EXTRAORDINARY> (1,784)
<CHANGES> 0
<NET-INCOME> 32,338
<EPS-PRIMARY> 1.51
<EPS-DILUTED> 1.51
</TABLE>
